CGAP: Pakistan is a laboratory for G2P payments

The digitisation of government’s payments to its workforce (both past and present) and the marginalised segments of the society is a work in progress. A recent study by one of the World Bank’s policy research institutes, the ‘Consultative Group to Assist the Poor’ (CGAP), highlights growing government use of electronic channels in making its government-to-person (G2P) payments in Pakistan.
CGAP’s overview of Pakistan’s G2P payments sector (Federal and Punjab governments) shows that the sector is worth $9.3 billion per annum. Including other governments, tiers could pile this figure up to around $12 billion. The study shows that social cash transfer programmes make up about 11 percent of payments made by the Federal and Punjab governments, salaries 68 percent and pensions 21 percent, respectively.
An increasing number of G2P flows is now said to be taking place through individual bank accounts rather than via Post Office or through over-the-counter service at the National Bank of Pakistan (NBP). But there is still tremendous space for digitisation (see the illustration).
A sound business opportunity exists for conventional banks and the branchless banking providers, who can earn fixed fee and/or float from governments for such payment disbursements.
Most of them already are; for instance, Easypaisa is involved with Employees’ Old-Age Benefits Institution (EOBI) pension disbursements and Benazir Income Support Programme (BISP) cash transfers. Similarly, United Bank Limited (UBL), Habib Bank Limited (HBL) and Bank Alfalah (BAFL) have been working with the Federal Government for BISP disbursements, as well as floods-related damage compensation. After the launch of its ‘Timepey’ BB service with Zong, Askari Bank (AKBL) reportedly has its eye on disbursing army pensions and salaries.
Pakistan’s largest social cash transfer programme, the BISP is leading the pack, thanks to government backing, donor support and banks’ positive response. Out of the five million beneficiaries, some 0.7 million now receive monthly cash handouts on the magnetic stripe cards (debit cards), which the BISP earlier issued in partnership with six banks (UBL, HBL, Alfalah, Tameer, Summit, and Sindh Bank).
CGAP views this arrangement favourably. Each bank has been assigned selected districts of BISP beneficiaries, and is paid a three percent fee under a two-year contract. Thanks to this ecosystem, banks have been able to extend their footprints to areas where they normally wouldn’t go. Some of them are now offering (or plan to offer) their branchless solutions to such beneficiaries.
The CGAP is all praise at the progress Pakistan is making in digitisation of G2P payments. “Pakistan serves as an example of how public and private institutions together can move a country towards a digital, financially inclusive system. Government and public actors have created the enabling environment and provided seed funding, while private actors are developing the infrastructure and services and developing a long-term business case.”
There are a few challenges that identified in the study, including the future of BISP programme in the next government and the business case for turning G2P beneficiaries into banking customers. However, CGAP is optimistic that if the current cooperation between industry and the regulators continues, over 75 percent of government flows could be digitised within five years.
For that, both the private and public sectors need to work together for financial education, segment-wise financial needs assessment and provision of a variety of financial services to the G2P beneficiaries.