• Company’s stock falls as much as 10% in Johannesburg
  • Net 1 involved in making payments, providing debit services

The South African Reserve Bank said the way the country’s welfare grants are paid out may have resulted in Net 1 UEPS Technologies Inc. having a conflict of interest as the company has the contract to make the payments and at the same time is marketing and providing products and services to beneficiaries.

Net 1 owns stakes in micro lending companies Moneyline Financial Services, Manje Mobile Electronic Payment Services and mobile banking service provider Zazoo, which have been named in some of the complaints of illegal deductions by welfare beneficiaries, according to the South African Social Security Agency.

There may issues “related to Net 1 being involved in pay outs” and selling services, the Pretoria-based central bank said in court documents filed on Wednesday with the High Court in Pretoria in a case where Net 1 has challenged new regulations that bar deductions from welfare grants. “This may lead to a possible conflict of interest and create perverse incentives, which may increase the likelihood of abuses.”

The case pits South African financial services companies against the government, which says it’s trying to protect some of nation’s poorest- and least-educated people from being taken advantage of as they often allow deductions without fully understanding what they are agreeing to. Net 1 didn’t immediately respond to e-mailed questions it requested.

In the same documents, the central bank also said that Grindrod Bank Ltd., contracted by Net 1 to provide accounts for grant beneficiaries into which payments are made, may be too small to effectively perform that role.

“Grindrod is a small retail bank with very few branches,” making it difficult for grant recipients to travel to branches to sort out queries and their “social and economic disposition” makes it unlikely they could effectively use a call center, the central bank said. Grindrod declined to comment.

Net 1 tumbled as much as 10 percent to 143.39 rand, the most since Jan. 15 on a closing basis, before trading 0.3 percent lower at 159.37 rand at 3:18 p.m., in line with the benchmark FTSE/JSE Africa All Share Index. Grindrod Ltd., which owns Grindrod Bank, rose 0.2 percent to 11 rand.

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