Controversial payment systems company Net1 UEPS Technologies has hit back at allegations that it is breaching South Africa’s National Credit Act.

Cash Paymaster Services (CPS), a division of Net1 UEPS Technologies, manages a R10 billion tender to distribute social grants to 15 million South Africans over a five year period.

However, controversy has surrounded the deal since its signing in 2012 as South Africa’s Constitutional Court this year slammed the South African Social Security Agency (Sassa) for its “irregular” conduct regarding the Net1 deal. The court ruled that Sassa needs to re-issue the tender, and last week the social security agency said it plans to publish the tender during the week of the 6th – 12th October 2014.

The Constitutional Court’s ruling against Net1 followed legal action from Absa bank unit Allpay Consolidated Investment Holding, which alleged that irregularities helped Net1 seal the Sassa deal.

Net1, which is listed on the Johannesburg Stock Exchange (NSE) and New York’s NASDAQ, is coming under further fire for selling micro-loans and even prepaid airtime to social grant recipients.

At a media briefing last month, Net1 officials claimed that they are creating credit profiles for social grant recipients so as to lend to them responsibly.

Yet an investigation by South Africa’s National Credit Regulator (NCR) disagrees.

The NCR on 22 September announced that it has applied to the National Consumer Tribunal to cancel the registration of Moneyline Financial Services, a subsidiary of Net1 Applied Technologies South Africa (Pty) Ltd, for breach of the National Credit Act 34 of 2005 (NCA).

“The use of child support grants and foster child grants as income for purposes of conducting affordability assessments on credit applications is totally unacceptable,” said Nomsa Motshegare, chief executive officer of the NCR, in a statement.

“It deprives children of money meant to provide for their daily necessities”, said Motshegare.

The NCR statement went on to detail findings of its investigation against Moneyline Financial Services. According to its statement, the NCR findings have revealed that:

• Moneyline Financial Services granted credit to consumers receiving child support grants and foster child grants meant for the upkeep of children. The NCR says these grants were used as income for assessing the consumers’ ability to repay credit.
• Moneyline Financial Services granted credit to consumers receiving social grants without assessing their debt repayment history.
• Moneyline Financial Services granted credit to consumers receiving social grants without taking into account their monthly living expenses.
• The credit agreement provided by Moneyline Financial Services to consumers is not in the prescribed form and does not contain crucial information about the rights and obligations of consumers.
• Moneyline Financial Services does not keep and maintain documentation in support of the affordability assessments relating to consumers’ income and debt repayment history.

But Net1 has responded vehemently to these findings, saying that NCR’s application to the tribunal “is riddled with factual inaccuracies.”

Net1 goes on to say that it is “perplexed by the NCR’s decision to issue a press release containing inflammatory allegations without first informing Net1 of the conclusions reached by the NCR following its investigation, which we believe was concluded months ago and before allowing Moneyline a fair opportunity to formally respond these allegations.”

Dr. Serge Belamant (pictured), chairman and chief executive officer (CEO) of Net1, further says in a statement on Thursday: “We strongly deny any contravention of the NCA and will oppose the NCR’s application.”

“As a South African and US-listed public company, we adhere to stringent internal controls and compliance procedures and we are subjected to regular internal and external audits all of which are documented and accessible for review by any regulator.

“We reiterate our commitment to provide affordable, responsible financial inclusion services to all citizens of South Africa, especially those who have no other access to formal financial services and often require short term credit to improve the lives of their family units,” he concluded.

Net1’s stock price roller coaster ride

Ever since court action and even investigations by US authorities into corruption allegations surrounding Net1’s South African tender deal were launched, the company’s stock price has fluctuated.

The company derives most of its global revenue from SA.

And following the Constitutional Court hearing in April this year, Net1’s stock dipped below the R100 mark on the JSE.

But Net1’s JSE share price rebounded in subsequent months thanks to strong full year results.

In August, Net1 reported that its full-year revenues increased to $582 million from $452 million in the previous year: a 29% increase. The company also reported that its fundamental net income reached $100 million in 2014, up 189% from $34,8 million the previous year.

Subsequently, US analysts Sterne Agee on September 15 set a “buy” rating Net1’s NASDAQ listing while analysts at Zacks upgraded shares of the company from a “neutral” rating to an “outperform” rating.

The JSE responded too, as the stock surged from around the R120 level to peak close to the R150 mark.

Amid the surge in Net1’s share price, CEO Serge Belamant sold 21,737 shares on the open market on the Nasdaq in a transaction dated September 19th, according to a filing with the US Securities & Exchange Commission.

The shares were sold at an average price of $13.59, for a total value of $295,405.83. Belamant now reportedly directly owns 342,612 shares in the company, valued at approximately $4,656,097.

But following the NCR’s Monday announcement Net1’s share price fell over R1 in trade on the day on the JSE to close at R148.90.