Committee for the Abolition of Illegitimate Debt

This is a tragedy, in part because of déjà vu: we’ve seen it before when earlier private-sector systems set up by MasterCard and Cash Paymaster Services were even more detrimental to the country’s poorest residents. The difference is that Postbank lacked system competence, whereas for private-sector firms, the motive was profit Profit The positive gain yielded from a company’s activity. Net profit is profit after tax. Distributable profit is the part of the net profit which can be distributed to the shareholders. .

Ironically, the new World Bank World Bank
WB The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

president, Ajay Banga, took office in June without a full investigation into his own predatory-financing history here, especially as MasterCard’s Chief Executive Officer at a time the credit card company pivoted its marketing strategy towards what is known as ‘financial inclusion.’

Here in South Africa, more than a decade ago, Banga championed a major financial technology (‘fintech’) partnership with a data services firm, Net1. A few years later, in 2016, the World Bank’s International Finance Corporation bought 22% of Net 1 – the largest single share Share A unit of ownership interest in a corporation or financial asset, representing one part of the total capital stock. Its owner (a shareholder) is entitled to receive an equal distribution of any profits distributed (a dividend) and to attend shareholder meetings. – for $107 million. The result was catastrophic.

Debt trap for the poor

The world’s most unequal society, South Africa, is also one of the world’s leading sites for financial experimentation. The country’s disastrous foray into commercial micro credit after apartheid ended in 1994 and was followed by mass collateralisation of welfare payments led by Net1. It is an extensive system for more than 25 million people – of the country’s 60 million residents – today receive a small monthly state grant: unemployment relief (R350), child support (R510), and grants supporting retirement pensions and disabled people (R2,090).

As part of MasterCard’s effort to bank 500 million unbanked poor people across the world, Banga partnered with Net1 to distribute the grants for the South African Social Security Agency (Sassa). Use of MasterCard debit cards helped recipients avoid long waits at government offices (the source of many deaths of older people). They were protected from petty criminals who stole grants at pay points.

In January 2013, Banga visited Soweto, which MasterCard still features on its Flickr account. The new system was greatly appreciated for its convenience and efficiencies.

After the visit, Banga claimed to The Washington Post, “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

In 2012, Banga had begun scaling up MasterCard services in alliance with a local corporate leader, Net1’s Serge Belamant, who collected personal and biometric information of over 18 million Sassa grant recipients, including a complete history of income and spending patterns.

Net1 marketed exclusively to Sassa welfare recipients, attaching debit orders for new credit-based products like micro-finance, funeral insurance and cellphone contracts. Accounts were often drained to the point recipients had little or no incoming funds each month.

Banga rapidly rolled out 10 million cards, and Net1 prevented grantees from defaulting because debt repayments were deducted automatically. Net1 “service fees” typically amounted to a usurious 5% interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. rate per month, so the firm gained more income from financial inclusion products than from the distribution of social grants from 2015-17.

Black Sash conducted a survey of grantees between October and November 2016, and 25. 5% answered ‘‘yes” to the question: ‘‘was any money deducted from your grant without your consent?” These occurred outside regulated financial structures because Net1 developed a shadow banking system that segregated welfare recipients into a monopolistic digital payment space.

The deal eliminated nearly all risk of default, using the social welfare state as a guarantor for private credit. And in the process, the welfare minister Bathabile Dlamini was herself corrupted.

Black Sash litigated against Net1’s Cash Paymaster Services (CPS), and by September 2020, not only ensured that Net1’s contract would not be renewed but won reparations that forced the subsidiary into formal bankruptcy (although Net1 continues to play a payments distribution role in South Africa and several other countries).

Poverty collateralisation

The de-risking strategy turned welfare benefits, underwritten by the state, into a new form of collateral Collateral Transferable assets or a guarantee serving as security against the repayment of a loan, should the borrower default. . The very purpose of anti-poverty cash transfers, i.e., alleviating levels of deprivation through monetised poverty relief, was reversed. Similar processes were tried in Brazil.

The World Bank was long opposed to such cash transfers 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, Bank staff began championing cash-transfer schemes as the new social policy blueprint for the Global South starting in the early 2000s.

The Bank claims that if provided with greater access to a set of digitalised micro-financial services (small loans, savings opportunities, money transfer payments and technology, debit orders, etc) delivered by for-profit investor-driven fintech platforms, billions could escape poverty.

The evidence to back up this heady contention is very weak. Much wider access to such services was already achieved since 1990 thanks to the micro-finance revolution and widespread debit-card issuance. Yet even former advocates now accept that micro-finance had zero impact on global poverty.

Early fintech platforms that were once widely applauded, such as Kenya’s M-Pesa, matured in a destructive manner and now increasingly exploit their clients. Even leading fintech CEOs, 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.

Banga’s appointment to lead the World Bank will likely promote Western consumption norms and over-indebtedness via the spread of fintech platforms. Bank fingerprints on this abuse were confirmed in its 2022-26 South Africa Country Partnership Framework assessment of the Sassa-MasterCard-Net1 deal, which declared that its objectives were ‘mostly achieved.’

Banga is thus the perfect new president of the World Bank, since its historic role has been largely predatory and since mass poverty creation has regularly occurred through pro-corporate ‘development’ projects and macroeconomic structural adjustment Structural Adjustment Economic policies imposed by the IMF in exchange of new loans or the rescheduling of old loans.

Structural Adjustments policies were enforced in the early 1980 to qualify countries for new loans or for debt rescheduling by the IMF and the World Bank. The requested kind of adjustment aims at ensuring that the country can again service its external debt. Structural adjustment usually combines the following elements : devaluation of the national currency (in order to bring down the prices of exported goods and attract strong currencies), rise in interest rates (in order to attract international capital), reduction of public expenditure (’streamlining’ of public services staff, reduction of budgets devoted to education and the health sector, etc.), massive privatisations, reduction of public subsidies to some companies or products, freezing of salaries (to avoid inflation as a consequence of deflation). These SAPs have not only substantially contributed to higher and higher levels of indebtedness in the affected countries ; they have simultaneously led to higher prices (because of a high VAT rate and of the free market prices) and to a dramatic fall in the income of local populations (as a consequence of rising unemployment and of the dismantling of public services, among other factors).

IMF : http://www.worldbank.org/ programmes. Add now to this, add the financial inclusion rhetoric that runs from 1990s microfinance through to Banga’s collateralisation of poor people’s welfare grants.