ANTHONY BUTLER: The big problem with BIGs: loan sharks and vampire firms love them
Large social grants have become collateral for debt, a Black Sash report has shown
First published in BusinessLive 14 October 2021
Social grants are not really a local government issue, even if the ANC manifesto celebrates 18-million social grants per month. The basic income grant (BIG) has not been a central part of the election campaign for any party.
A recent report by consultancy Intellidex pointed to a failure by BIG advocates to deal with the implications of the tax increases necessary to fund it. But fiscal probity is unlikely to be the real reason for parties’ BIG-hesitancy during the campaign.
Some retired businesspeople and bankers have recently described social grants as unconditional benefits for their recipients. Their brothers on the left, in the same vein, see BIG as a cure-all that can relieve poverty, spur investment and enhance human freedom.
For electors themselves, however, grants are legitimate, but they are far from being a panacea. In 2020 Afrobarometer reported that 76% of SA respondents support government social protection for the poor. But a majority also believe people should work for their payments.
Grants create problems as well as solving them. In particular, as the Black Sash explained in 2020 in a report on “reckless lending” in SA, there is a troubling relationship between social grants and indebtedness.
On the face of it, when you give people grants they have more money to spend, so their debt should fall. The trouble is that grants also attract predatory lenders.
How does this happen? Unemployed adults who survive on casual work are vulnerable and “congregate” around grant recipients, including grant-receiving mothers or grandmothers. Despite receiving a grant, beneficiaries are almost invariably required to borrow, because they support up to a dozen people in multigenerational households.
The idea that grants will be used as a “developmental tool” is great in theory. In practice, as the Black Sash observes, “we found … no cases of people borrowing to fund investment in small enterprises, and no-one we met was able to repay their loans from a successful business … almost all grantees were using credit merely for immediate consumption needs or emergencies.”
Moreover, grant recipients remain poor, and they face challenges for which they cannot reliably set aside monies: school and university fees, illness, disability, job losses, or family deaths. Worse still, the failures of the state — such as inadequate public health care or late payment of university bursaries — force people to borrow multiples of their available resources without warning.
When people must borrow, a steady state-guaranteed income attracts predators beyond the usual purveyors of store cards, furniture and insurance policies. Neighbourhood moneylenders and loan sharks love the prospect of reliable repayment, especially where they can relieve clients of their ATM cards and PIN numbers.
After 2012 the SA Social Security Agency’s contract with Cash Paymaster Services made more than 10-million grant recipients sitting ducks for shady financiers marketing their products to social grant recipients. The sharks used debit orders to deduct repayments directly from recipients’ accounts.
Illegal practices continue, despite the move of most grant recipients to “special disbursement accounts”. Beneficiaries are still forced to seek credit on unfavourable terms and they still end up in interminable debt enslavement.
The Black Sash points to the paradox this poses: “SA has a large social grant system meant to provide resources to poor people, but these grants have become collateral for debt. Grantees need extra money to smooth consumption and cope with shocks, but the credit available to them often has exploitative terms and conditions.”
The disheartening implication is that “the very social grant meant to provide support for vulnerable people is eaten up in high interest rates, fraudulent repayments and bank charges”.
A poorly designed BIG could simply result in a feeding frenzy for the great vampire squids of SA’s formal and informal financial systems.
• Butler teaches public policy at the University of Cape Town.