The Western Cape High Court has ruled in favour of the National Student Financial Aid Scheme (NSFAS), declaring the procurement processes and agreements used to appoint fintech companies to manage student allowance payments unlawful and invalid.
The fintech providers system was unpopular with students as they were charged much higher transaction fees than they would have been if the allowances were just paid into their bank accounts. Since these contracts ended students have been paid directly by NSFAS, or via their universities.
While the court approved the cancellation of the contracts, the affected fintech providers may still seek compensation from NSFAS for reasonable expenses and profits incurred under the agreements.
Court Finds NSFAS Payment Contracts Unlawful
NSFAS and the Special Investigating Unit (SIU) welcomed the court's judgment in the case of eZaga Holdings (Pty) Ltd v NSFAS and Others (Case No. 9526/2024).
The ruling relates to the procurement process used to appoint four companies that were responsible for distributing student allowances. These companies, commonly referred to as the fintech providers, were:
- eZaga Holdings (Pty) Ltd
- Coinvest Africa (Pty) Ltd
- Noracco Corporation (Pty) Ltd
- Tenet Technology (Pty) Ltd
In a joint statement issued on Saturday, NSFAS and the SIU said the judgment represents an important step towards strengthening governance, transparency and accountability in the management of public funds.
Procurement Process Found to Be Irregular
The court found that both the procurement process followed by NSFAS and the Service Level Agreements (SLAs) signed with the fintech providers were unconstitutional, unlawful and invalid.
According to the judgment, the procurement process was affected by several irregularities, including:
- Improper cancellation of tenders
- Irregular drafting and approval of bid documents
- Failure to comply with mandatory procurement requirements
- Weak internal controls
The court agreed with NSFAS's position that these procurement irregularities needed to be addressed and recognised the organisation's constitutional obligation to correct them.
“The judgment not only vindicates our efforts in identifying and addressing significant governance failures but also reinforces our resolve to root out maladministration and safeguard the integrity of public procurement processes, ensuring that resources entrusted to NSFAS are used in the best interests of South Africa’s students,” the statement said.
No Evidence of Wrongdoing by Fintech Companies
Despite declaring the contracts invalid, the court found no evidence that any of the appointed service providers were involved in corruption, maladministration or misconduct related to the procurement process.
As a result, the court ordered that the affected fintech companies be allowed to claim just and equitable compensation for reasonable expenses and profits that can be proven to have been incurred under the invalidated agreements.
The court stated that any compensation claims will be subject to strict scrutiny and independent verification to ensure accountability and fairness.
NSFAS to Engage With Affected Service Providers
NSFAS confirmed that it will work with the affected service providers to implement the compensation process as directed by the court.
The student funding scheme and the SIU also reaffirmed their commitment to protecting public resources and rebuilding confidence in the administration of student financial aid.
“We wish to reassure all stakeholders, including students, parents, and the public, that NSFAS remain steadfast in their dedication to upholding integrity and restoring confidence in the administration of student financial aid,” the statement said.
What This Means for NSFAS Students
The judgment is a significant development in NSFAS's efforts to strengthen governance and improve the management of student funding. While the court has invalidated the contracts awarded to the fintech providers, it has also made it clear that the companies themselves were not responsible for the procurement irregularities.
NSFAS has assured students and stakeholders that it remains committed to ensuring the effective and transparent administration of financial aid for deserving students across South Africa.
