Pakistan Urges World Bank to Restructure Financial Inclusion and Infrastructure Project

The government has requested the World Bank for restructuring the “Pakistan Financial Inclusion and Infrastructure Project” to complete the national payment system activities and reallocation of undisbursed funds.

Official documents available with ProPakistani revealed that the Financial Inclusion and Infrastructure Project (FIIP) was conceptualized to support the implementation of Pakistan’s National Financial Inclusion Strategy (NFIS) of the State Bank of Pakistan (SBP).

The SBP developed the NFIS with the support of the World Bank (WB) through a Reimbursable Advisory Service (RAS) in 2015. The government requested World Bank support to help meet the objectives of the NFIS through the FIIP; which was approved by the WB Board on June 15, 2017.

FIIP is a US$137 million operation. The Project Development Objective (PDO) is to contribute to increasing access and usage of digital payments and other financial services for households and businesses in Pakistan. As the project currently stands, all PDO level indicators have been achieved and the intermediate indicators have partially been achieved.

The rating for progress towards achievement of PDO is Satisfactory and remains Moderately Satisfactory for overall implementation progress. The ratings have remained constant over the last 24 months. The project financial management performance rating is Moderately Satisfactory, and the Financial Management Risk is Moderate. Furthermore, overall safeguards ratings have remained Satisfactory.

Project implementation and outcomes have been impacted by COVID-19 and changing government priorities. Procurements required for Component 1a (Improving Financial and Market Infrastructure to Facilitate the Uptake of DTAs) were subject to delays. Additionally, due to the recent devastating floods, there is a focus on prioritizing existing funding flows to help rehabilitation efforts where possible.

It is in this context that the government has requested that the project closing date is extended to complete component 1(a) and that reallocations are made across components to support the flood relief efforts through ongoing activities in component 3(a) – Improving Access to Microfinance and to Financial Services for Micro Enterprises.

The government has requested an extension to complete the activities under component 1a (Improving Financial and Market Infrastructure to Facilitate the Uptake of DTAs). This activity entails the upgradation of the National Payments System (NPS) housed at SBP.

Without an extension, the upgradation of the payment system will remain incomplete, and the National Payment Gateway will not reflect the evolution envisioned in the GoP’s NPSS (National Payment System Strategy). NPSS was launched jointly by the Governor of SBP and the President of the World Bank in 2019.

While the project has achieved PDO level indicators and partially achieved intermediate indicators related to this component, this was due in great part to the increased uptake of electronic payments as part of the government’s response to COVID-19.

These gains are likely to reverse or remain static without the achievement of the pending intermediate indicators which monitor the establishment of the underlying payments infrastructure, thereby limiting the sustainability and development impact of the project.

As such, the request for the extension is both valid and timely. The extension will be done in two phases, with the initial extension proposed for 6 months. This will support meaningful progress in procurement processes under this activity. There were significant delays in the implementation of this component.

This component required consulting deliverables to inform the nature and scope of the payment systems upgradation followed by a complex procurement for the upgradation itself. COVID-19 impacted the procurement processes and the delivery of outputs for the initial work. The COVID-19-related delays were further exacerbated by the fact that there was limited response to the Expressions of Interest (EOI) for the early consultancies — resulting in the need to repeat the process.

These early deliverables are now in place but the procurement of the contract for the actual upgradation has yet to be initiated.

The initial 6-month extension will include clear milestones for the procurement process. Once the procurement has reached a stage where technical and financial proposals have been reviewed, the next longer extension (up to 24 months) will be activated as agreed.

The proposed restructuring also includes the reallocation of funds across components (as requested by the government). As mentioned earlier, the huge financing needs for flood rehabilitation require a level of reprioritization of existing funding channels. Component 3a which provides liquidity to the micro-finance sector and whose initial allocation (US$75 million) stands fully disbursed, is the most appropriate component under the operation to facilitate this.

The microfinance sector makes up approximately 80 percent of all formal financial sector borrowers in Pakistan and has more robust outreach to women and rural borrowers than commercial banks. The sector also has a strong footprint in flood-impacted areas and will play a significant role in rehabilitation efforts (of the 8.4 million microfinance borrowers in Pakistan, 18 percent are in flood-impacted areas).


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