(Bloomberg) — Net 1 UEPS Technologies Inc., which has a government contract to pay South African welfare grants to 16.9 million beneficiaries, has asked the country’s High Court to rule on whether a ban on direct deductions from grants applies to all services or just life insurance.
The company said it filed for a declaratory order with the North Gauteng High Court in Pretoria on June 3 after the government last month amended regulations to stop insurance companies, such as Lion of Africa Life Assurance Co., from deducting funeral-insurance premiums from grants the government pays out to support poor children. The government also wants to halt what it said were illegal deductions for services such as mobile phone air time.
Net 1 “interprets the meaning of the word ‘deductions’ to be specific to the practice of collecting life-insurance premiums from grants, before the grants are paid to social-welfare beneficiaries’ bank accounts,” it said in a statement. Barring deductions for other services and products violates the constitutional rights of the beneficiaries, it argued. Net 1 said on Monday it couldn’t immediately provide further comment.
South Africa amended the regulations, effectively invalidating two court cases it was involved in with insurance companies, because of concerns that funeral insurance for children was being sold to some of the country’s poorest and least educated people. The South African Social Security Agency, or Sassa, said that the grant beneficiaries often didn’t understand what they were signing. Community activists said that the policies paid from children’s’ grants were of little value as the minors rarely die while covered by them.
Beneficiaries are paid by the government into bank accounts that they can withdraw money from using a Sassa card that is provided by the companies that administer and distribute the grants.
“The bottom line is that they do not see the amended regulations the same way that we do, they are still adamant that the Sassa card is a fully fledged bank account,” said Dianne Dunkerley, executive manager of grants administration at Sassa, by phone from Pretoria. “Because it’s a special account we see that we can put restrictions on it.”
Net 1 sees Sassa’s new regulation as violating the human rights of beneficiaries and will hinder attempts to bring poor South Africans into the financial system, the company said in the statement.
“Sassa’s interpretation effectively prohibits the social welfare recipient community from enjoying the benefits of a convenient, low-cost, reliable and ubiquitous payment system that enables the recipients to procure financial services at highly competitive rates,” Net 1 said.