A great deal can be learned from the past decade’s experiences, beginning in South Africa where he authorized a partnership with a partially World Bank-owned data services firm, Net1. The Bank’s International Finance Corporation bought 22% of Net 1 – the largest single share – in 2016 for $107 million.
Net1’s main subsidiary, Cash Paymaster Services (CPS), was forced into bankruptcy in 2020 after social activism led to judicial prosecution of its long-standing debit-order strategy which impoverished millions under the guise of financial inclusion. Net1 drew poor people into the formal banking system on terms that led to credit-catalysed underdevelopment, not development.\
Debt trap for the poor
The world’s most unequal society, South Africa is also one of the world’s most important sites for financial inclusion experimentation first because of its disastrous foray into commercial microcredit after apartheid ended in 1994. But this lamentable episode was compounded by the 2010s experiences with the mass collateralization of welfare payments.
More than 25 million people – of the country’s 60 million residents – today receive a monthly state grant, divided into four categories: unemployment relief for $20, child support for $27, and a grant supporting both the retirement pension and disabled people for $110.
As part of his effort to bank 500 million unbanked poor people across the world, Banga partnered with the South African Social Security Agency (SASSA) and Net1, to use MasterCard debit cards for welfare grant distribution. This new debit card payment system was meant to assist low-income South Africans to avoid long waits at government offices in the hot sun (the source of many deaths of older people), protect them from the petty criminals who stole from grant recipients at paypoints, and diminish the costs of distributing cash, saving the government money.
Source: MasterCard on Flickr
In January 2013, Banga visited Johannesburg’s sprawling black township of Soweto, and located a recipient in the Elias Motsoaledi shack settlement next to the city’s largest hospital, which MasterCard still features on its Flickr account. Four months later, the Washington Post provided him a puff-piece platform for his recollections about grant recipient Hilda Nkantini:
“In South Africa, I met a woman called Hilda, a 77-year-old lady, living in a little tin shack. And she told me — and it’s tough to keep your head straight when you hear somebody say that to you — she said, ‘Now I feel like I’m somebody. I have a card that has my biometrics. I exist.’ And you cannot imagine the surprise on her face. Getting the same social benefits she was getting earlier, but then it was in cash, and she was anonymous. Now she had an identity inside of South Africa.
No doubt the new system was greatly appreciated for its convenience. But Banga continued,
“I’m not a philanthropy. I’m not a United Nations agency. I run for shareholders. I have to do well. I believe you can do both… if these guys use their card, I’m going to make money… In the beginning they’ll take out cash at an ATM. I make very little money if they just take out cash at an ATM. But you know what? They’ll benefit by doing that, and that’s the first step.”
From grant access to financial predation
Just at the point Banga claimed he could strike a balance between “doing good” for people and shareholders, South African welfare payments were being transformed into collateral for high-priced financial products. In 2012, Banga had already begun scaling up MasterCard services by partnering with one of South Africa’s most notorious corporate leaders, Serge Belamant of CPS/Net1.
Belamant collected the personal and biometric information of over 18 million SASSA grant recipients, including a complete history of income and spending patterns. Four Net1 subsidiaries marketed financial products exclusively to SASSA welfare recipients, attaching debit orders for new credit-based products (mainly microfinance, funeral insurance and cellphone contracts). Grant recipients’ accounts were often drained to the point they had little or no incoming funds each month.
Banga repeatedly used Hilda’s story to promote his innovation – here, here, and here – but the main objective of his next-step technology was to facilitate the turn from welfare to financial predation. As Banga rapidly rolled out 10 million cards, Net1 sold financial inclusion products to grantees, with no possibility for grantees to default on their debts because repayments were deducted automatically.
Net1 “service fees” typically amounted to a 5% interest rate per month. Through high-priced credit, Net1 gained more income from financial inclusion products than from the distribution of social grants from 2015-17. The welfare-advocacy NGO Black Sash conducted a survey between October and November 2016, and out of 1591 grantees, 25.5% answered ‘‘yes” to the question: ‘‘was any money deducted from your grant without your consent?”
Most of these Net1 deductions happened outside traditional financial structures. In short, facilitated by MasterCard, Net1 developed a shadow banking system that did not, in reality, introduce grantees to the mainstream financial sector but instead segregated them in a monopolistic digital payment space outside of state oversight and control.
Grant recipients could not choose whether to pay or delay, as repayments were deducted automatically. The SASSA-MasterCard-CPS/Net1-Grindrod partnership eliminated nearly all risk of default, using the social welfare state as a guarantor for private credit. In the process, the welfare minister had herself been corrupted.
Black Sash litigated against CPS and by September 2020 were successful, not only ensuring Net1’s contract would not be renewed but winning a reparations demand that forced CPS into formal bankruptcy (although Net1 continues to play a welfare payments distribution role in South Africa and several other countries).
South Africa and Brazil as poverty-collateralization pilots
This kind of de-risking strategy turned welfare benefits, underwritten by the state, into a new form of collateral, reversing the very purpose of anti-poverty cash transfers, i.e., alleviating their levels of deprivation through monetized poverty relief. Similar processes have been underway in Brazil and many other sites of cash transfer systems.
The World Bank had been deeply skeptical, and indeed openly opposed to any kind of monetary transfers to the poor until the late 1990s (on the grounds that they would exacerbate poor people’s destructive consumption habits). But having envisaged the ease of debt-loading a regular income stream, began championing the scheme as the new social policy blueprint for the Global South starting in the early 2000s.
Conditionalities were adopted and strict eligibility criteria were established to legitimize the use of state-sponsored cash transfers, thus introducing parameters – such as means testing and workfare requirements – that discriminated the poor into the classic division of ‘deserving’ and ‘undeserving.’ The possibility of taking out loans – which is considered a new form of social ‘right’ in the wake of the supposed microfinance empowerment wave – has created a new existential condition: structural indebtedness.
A new, even more perverse and abject form of poverty is emerging, one that occurs through the financial extraction of those most vulnerable, who now need to permanently resort to ever higher debt levels to repay old loans and make ends meet.
This shows how dramatic the Bank’s presidential appointment of Banga will be, even more so now that tackling the climate crisis urgently calls for a new generation of eco-social policies that truly and equitably meet the needs of those who continue to pay – in the Global South – for the mistakes of failed development policies and the Global North’s overconsumption of greenhouse gases.
In pursuing financial inclusion along these lines, MasterCard is one of an elite group of digital payment, telecom and financial corporations, digital utopian philanthrocapitalists (notably the Gates Foundation), innovators like Belamant, right-wing lobbying organisations, allied NGOs like Accion, and the World Bank and IMF. This elite group has been termed by Daniela Gabor and Sally Brooks the ‘fintech-philanthropy-development complex.’
Their central claim is that if provided with greater access to a set of digitalised microfinancial services (small loans, savings opportunities, money transfer payments and technology, debit orders, etc) delivered by for-profit investor-driven fintech platforms, the poor in the Global South will be better able to escape their poverty.
However, the evidence to back up this heady contention is very weak. For a start, much wider access to such services has already been achieved since 1990 thanks to the microfinance revolution and widespread debit-card issuance. Yet even one-time leading advocates now accept that the supposed revolution ultimately had zero impact on global poverty.
Moreover, early fintech platforms that were once widely claimed to be excellent ‘role models’, notably Kenya’s M-Pesa, have ‘matured’ in a destructive manner, and now increasingly exploit their clients.
MasterCard’s well-publicised corporate goal of extending financial inclusion in order to address global poverty allegedly reflects the corporation’s social responsibility, as well as Banga’s passionate personal interest in linking technology to development.
But neither of these accounts add up in practice. Even leading CEOs in the fintech sector, such as PayPal’s Dan Schulman, now readily concede that financial inclusion is simply a euphemistic ‘buzzword’ for recruiting as many new clients as possible, the better to be able to quietly extract a never-ending stream of value from intermediating their trillions of dollars’ worth of tiny financial transactions.
Banga’s accomplishments appear as a repeat version of the earlier colonial adventures that allowed the great powers to wreak havoc upon their subjects. By extracting enormous natural-resource and labor-based wealth under cover of the ‘white man’s burden,’ or spreading Christianity, colonies were programmatically plundered and under-developed. Whether by design or default, Banga’s appointment is likely to promote Western consumption norms and indebtedness via the spread of fintech platforms.
Nkantini didn’t fit MasterCard’s script
Upon hearing of Banga’s new job, we were curious whether Hilda Nkantini had suffered from his decade-long financial predation in South Africa – and we learned that her financial common sense had prevailed over MasterCard’s poster-child marketing and the fintech-philanthropy-development complex’s gimmicks.
If you track her down to the same impoverished shack settlement where she has resided for decades – as did University of Johannesburg Centre for Sociological Research and Practice scholar-activist Siphiwe Mbatha last month – you learn that she barely survives, economically.
But while she still gratefully uses her MasterCard, she was insistent that she never took advantage of debit orders placed against her grant for spurious services and loans.
Nkantini provides proof that the neoliberal agenda associated with seductive financial inclusion can be resisted. She appreciates technological advances (the card-based distribution of grants) but doesn’t fall for biometric surveillance or debit-order collaterialization of welfare-sourced income.
That subtle resistance, a jujitsu of Banga’s ideology and the CPS/Net1 partnership, was all too rare, however. As a result, the predatory features of MasterCard’s abuse of grant distribution are the main legacy Banga left in South Africa.
Moreover, the World Bank’s fingerprints on the abuse were confirmed when in mid-2021, its 2022-26 South Africa Country Partnership Framework assessment of the 2010s financial inclusion deal proudly declared that its objectives were ‘mostly achieved.’ Under the heading ‘Lessons,’ the section containing Net1 was left blank.
In that sense, Ajay Banga is the perfect man to lead the World Bank, since its historic role has been largely predatory and since mass poverty creation has regularly occurred through its pro-corporate ‘development’ projects and macroeconomic structural adjustment programs. Add now to this, the financial inclusion rhetoric that runs from 1990s microfinance to Banga’s recent collateralization of poor people’s welfare grants. The next five or ten years that Banga will run the institution are sure to confirm the impossibility of its reform.
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