Paying Private Sector Wages by Mobile to Add 20 Million People in Financial System

Digitalizing private sector wage payments in Pakistan would result in a 13 percentage point increase in account ownership and bring around 20 million unbanked adults into the formal financial system, says the World Bank.

The bank, in its latest report, “The Global Findex Database 2021, Financial Inclusion, Digital Payments, and Resilience in the Age of COVID-19,” stated that mobile phones could help facilitate electronic wage payments because more than 80 percent of adults who received private sector wages in cash in Pakistan have a mobile phone.

The report noted that in lower middle-income economies, account ownership ranges from 21 percent in Pakistan to 98 percent in Mongolia.

In India, account ownership more than doubled in the past decade, from 35 percent in 2011 to 78 percent in 2021. This outcome stemmed in part from an Indian government policy launched in 2014 that leveraged biometric identification cards to boost account ownership among unbanked adults. Pakistan grew by 10 percentage points over the past decade, from 10 percent in 2011 to 21 percent in 2021.

In other economies, however, gender gaps have decreased despite the lack of growth in overall account ownership. Bangladesh showed no growth in overall account ownership between 2017 and 2021, although the growth in mobile money accounts for women narrowed the gender gap to 19 percentage points. Pakistan saw its gender gap narrow from 28 percentage points to 15 percentage points, despite flat overall account ownership.

The report further noted that most developing economies have a gap in account ownership between the active and inactive groups. In Nigeria and Pakistan, adults who are active in the labor force are roughly twice as likely to have an account as those who are not.

Despite having relatively high rates of account ownership, China and India claim large shares of the global unbanked population (130 million and 230 million, respectively) because of their size. Pakistan, with 115 million unbanked adults, and Indonesia, with 100 million, have the next-largest unbanked population. These four economies, together with Bangladesh, Egypt, and Nigeria — are home to more than half of the world’s unbanked population. The top five economies hosting the largest share of the world’s unbanked populations were the same in 2017 and 2021.

In Egypt, Guinea, and Pakistan, women make up more than half of the unbanked population. Women are often excluded from formal banking services because they lack official forms of identification, do not own a mobile phone or other forms of technology, and have a lower financial capability.

Globally, 30 percent of unbanked adults said that they do not have an account because a family member already has one. In some economies, this reason is more likely to be reported by women than by men. Among the unbanked in Türkiye, 39 percent of women mentioned this reason and 25 percent of men. The data reveal significant gender gaps in Algeria, Bolivia, Nepal, Pakistan, and Tunisia, where women are more likely than men to report this reason. Most of these countries also had significant gender gaps in account ownership. By contrast, in China and India, men and women were equally likely to say they do not have an account because a family member already has one.

In South Asia, 240 million unbanked adults have a mobile phone—that is, more than half of the 430 million unbanked in the region. More specifically, 56 percent of all unbanked adults in the region have a mobile phone, including 51 percent of unbanked adults in India and 55 percent of unbanked adults in Pakistan. In Bangladesh, 69 percent of unbanked adults have a mobile phone; in Nepal, 73 percent.

In South Asia, women are 22 percentage points less likely than men to have a mobile phone. India and Bangladesh are near the South Asian average, with gaps in mobile ownership of 19 and 20 percentage points, respectively. In Pakistan, women are half as likely as men to have a mobile phone.

In Pakistan, more than four out of five unbanked adults said they could not use an account at a financial institution without help.
In Pakistan, men and women account owners are equally likely to use their accounts for digital payments, and most do (84 percent), despite low overall account ownership and an ownership gender gap of 15 percentage points.

Across developing economies, utility bill payment practices vary widely. In Egypt, virtually everyone who made utility payments did so in cash, as did more than 80 percent of those paying utility bills in Indonesia, Morocco, Myanmar, and Pakistan, among others.

Afghanistan has the highest share of adults who borrowed only from family and friends in both absolute and relative terms: 59 percent of adults or 87 percent of borrowers. Other economies where borrowing only from family and friends dominated include Morocco, where 77 percent of borrowers did so, and the Arab Republic of Egypt, Jordan, and Pakistan, where about two-thirds did so.