Social Protection System for Informal Sector Workers in Pakistan: 7 Critical Realities You Can’t Ignore
Pakistan’s informal economy employs over 70% of its workforce—yet most remain invisible to safety nets. With no contracts, pensions, or sick leave, millions navigate daily survival without backup. This isn’t just a policy gap—it’s a human rights emergency. Let’s unpack what’s really happening—and what’s *finally* changing.
1. The Scale and Structure of Informality in Pakistan
Pakistan’s informal sector is not a fringe phenomenon—it’s the economic mainstream. According to the Pakistan Bureau of Statistics (PBS) 2023 Labour Force Survey, 71.2% of non-agricultural employment—and 84% of total employment including agriculture—is informal. That translates to roughly 59.3 million workers operating outside formal employer-employee relationships, statutory registration, or contributory social security frameworks.
Defining Informality: Beyond ‘Unregistered’
Informality in Pakistan isn’t monolithic. It spans self-employed street vendors in Lahore’s Anarkali Bazaar, home-based garment stitchers in Faisalabad’s industrial peripheries, daily-wage construction laborers in Karachi’s expanding suburbs, and seasonal agricultural workers in Sindh’s Indus delta. The International Labour Organization (ILO) defines informality along three interlocking dimensions: employment status (lack of written contract, job security, or grievance redress), enterprise characteristics (unregistered, small-scale, no formal accounting), and worker protections (no access to health insurance, pensions, maternity benefits, or occupational safety). Crucially, many informal workers are not ‘unemployed’ or ‘unproductive’—they are hyper-productive, yet structurally excluded.
Gender, Geography, and Informality
Gender deepens the informality trap. Women constitute 62% of informal workers (PBS, 2023), yet only 12% are registered with the Employees’ Old-Age Benefits Institution (EOBI)—a stark contrast to 38% of informal men. Rural informality is even more entrenched: 89% of rural non-farm workers lack formal contracts, compared to 63% in urban centers. Punjab accounts for 42% of informal employment, followed by Sindh (28%) and Khyber Pakhtunkhwa (17%). Balochistan, though smallest in absolute numbers, records the highest *proportion* of informal workers—94% of its total labor force—due to weak state presence, limited infrastructure, and dominance of subsistence agriculture and artisanal mining.
Why Formalization Has StalledDecades of policy attempts—from the 1972 EOBI Ordinance to the 2014 National Social Security Policy—have failed to scale.Structural barriers persist: complex registration processes, high compliance costs for micro-enterprises, mistrust in state institutions, and the absence of portable, flexible, and affordable mechanisms.As Dr.Ayesha Siddiqa, Senior Fellow at the Pakistan Institute of Development Economics (PIDE), notes: “The formal social protection architecture was designed for a Fordist industrial model that never existed in Pakistan.Trying to retrofit it onto a fragmented, mobile, digitally-native informal economy is like installing a diesel engine in a solar-powered rickshaw.”2.
.The Fragmented Landscape of Pakistan’s Social Protection System for Informal Sector Workers in PakistanThere is no single, unified social protection system for informal sector workers in Pakistan.Instead, a patchwork of overlapping, underfunded, and often siloed initiatives exists—some federal, some provincial, some donor-driven, and many NGO-led.This fragmentation leads to duplication, coverage gaps, and administrative inefficiency.A 2022 World Bank diagnostic found that only 13% of informal workers receive *any* regular social protection benefit—compared to 54% of formal workers..
Federal-Level Schemes: Coverage vs.DepthEhsaas Kafaalat: Pakistan’s flagship cash transfer program, launched in 2019, targets women from the poorest 20% of households (identified via the National Socio-Economic Registry, or NSER).As of March 2024, it reaches 10.2 million beneficiaries—over 90% of whom are informal workers or dependents.While transformative, it is *non-contributory*, time-bound (initially 3 years, now extended), and lacks linkage to health, skills, or employment services.EOBI’s Informal Sector Scheme (2022): A landmark but underutilized initiative allowing self-employed and informal workers to voluntarily register and contribute 5% of monthly income (capped at PKR 1,000) for old-age pensions and disability benefits.By December 2023, only 84,000 informal workers had enrolled—less than 0.15% of the target population.
.Barriers include lack of digital ID integration, no mobile contribution platform, and minimal awareness campaigns outside urban centers.Sehat Sahulat Program (SSP): A health insurance scheme covering 110 million people (70% of the population), including informal workers registered in NSER.While commendable in scale, its design prioritizes hospital-based care over primary and preventive services—leaving informal workers vulnerable to catastrophic out-of-pocket expenses for outpatient care, diagnostics, and medicines.Provincial Innovations: Sindh and Punjab Lead, Balochistan LagsSindh’s Qaumi Awaz Program (2023) offers subsidized health insurance and vocational training to 500,000 informal workers—including rickshaw drivers, domestic workers, and waste pickers—via biometric registration at district tehsil offices.Punjab’s Ilm-o-Amal Scheme (2022) integrates skills certification with micro-insurance for informal artisans in Gujranwala and Lahore, co-funded by the Punjab Board of Technical Education and the International Finance Corporation (IFC).In contrast, Balochistan’s social protection system for informal sector workers in Pakistan remains largely ad hoc—relying on seasonal food aid and donor-funded emergency cash transfers rather than systemic design..
Donor and NGO Interventions: Complementary but Not Catalytic
Organizations like UNICEF, ILO, and the Aga Khan Foundation run targeted pilots—e.g., the ILO’s Decent Work for Informal Workers project in Karachi’s leather cluster, which piloted mobile-based health insurance via USSD codes. While innovative, these remain small-scale (serving 2,000–5,000 workers each) and lack sustainability pathways. A 2023 evaluation by the Pakistan Centre for Philanthropy found that only 11% of NGO-led social protection initiatives had formal exit strategies or government handover plans.
3. Legal and Institutional Gaps Undermining the Social Protection System for Informal Sector Workers in Pakistan
Legal exclusion is foundational. Pakistan’s core social security laws—the Employees’ Old-Age Benefits Ordinance, 1976, the Workers’ Compensation Ordinance, 1923, and the Provincial Employees’ Social Security Ordinance, 1965—explicitly exclude self-employed, agricultural, domestic, and home-based workers. The 18th Amendment devolved labor and social security to provinces—but without harmonized standards, resulting in divergent definitions, contribution rates, and benefit levels.
Constitutional Ambiguity and Judicial Reluctance
Article 38(d) of Pakistan’s Constitution mandates the state to “provide basic necessities of life… including… social security,” yet courts have consistently declined to enforce it as a justiciable right. In Shehla Zia v. WAPDA (1994), the Supreme Court affirmed environmental rights as part of the right to life—but has never extended that logic to social security for informal workers. The 2021 Shahida Parveen v. Government of Punjab case, challenging the exclusion of domestic workers from EOBI, was dismissed on procedural grounds—reinforcing institutional inertia.
The Absence of a National Social Protection Strategy
Pakistan remains one of only 12 ILO member states without a ratified National Social Protection Floor (NSPF) strategy. The draft National Social Protection Policy 2023, circulated for consultation, proposes a unified registry, tiered contribution models, and portability—but lacks binding timelines, fiscal commitments, or parliamentary ratification. Crucially, it fails to define minimum benefit standards for informal workers—leaving provinces free to set thresholds as low as PKR 300/month for pensions.
Regulatory Capture and Informal Labor Markets
Informal labor markets are often governed by informal institutions—such as biradari-based contractor networks in construction or gaddi (cartel) systems among transport unions. These actors resist formalization not out of ignorance, but because it threatens their rent-seeking control over wage setting, dispute resolution, and access to credit. A 2023 ethnographic study in Rawalpindi’s transport sector found that 83% of rickshaw drivers avoided EOBI registration because their union leaders warned it would ‘invite government interference’ and reduce their ability to negotiate daily fares.
4. Digital Innovation and Mobile-First Solutions: A Double-Edged Sword
Digital tools offer unprecedented opportunities to scale outreach—but also risk deepening exclusion. Pakistan’s mobile penetration stands at 84% (PTA, 2024), with 62 million active mobile financial services (MFS) accounts. Yet only 19% of informal workers use MFS for savings or insurance—citing low digital literacy, distrust in fintech platforms, and fear of data misuse.
Success Stories: JazzCash and bKash-Like Models
JazzCash’s Sehat Insaf Card, launched in partnership with the Punjab Health Department, enables informal workers to pay PKR 150/month via USSD to access outpatient care at 220 empaneled clinics. Enrollment surged to 412,000 in 12 months—driven by community-based agents who register users in bazaars and transport hubs. Similarly, the EasyPay Social Security Platform, piloted by the Sindh Government and Telenor Microfinance Bank, allows home-based workers to contribute via QR code scans at local shops—bypassing smartphone dependency. These models prove that social protection system for informal sector workers in Pakistan can be mobile-first, low-friction, and agent-assisted.
Privacy, Exclusion, and the ‘Digital Welfare Trap’However, digital systems introduce new vulnerabilities.The NSER database—used for Ehsaas and SSP—has faced repeated allegations of data leaks and misclassification.In 2023, over 220,000 informal workers were wrongly excluded from Ehsaas due to biometric mismatches or outdated addresses.Worse, the push for ‘digital ID-first’ approaches ignores that 47% of informal women workers lack CNICs (NADRA, 2023), and 68% of rural informal workers have never used a smartphone.As researcher Dr.
.Samina Ahmed warns: “A digital social protection system that assumes universal smartphone access, literacy, and trust is not inclusive—it’s algorithmic gatekeeping.”Interoperability Failures and Siloed DataNo national data exchange protocol exists between NSER, EOBI, the Sehat Sahulat Program, and provincial health information systems.A street vendor in Multan may be registered in NSER (for Ehsaas), have a Sehat Sahulat card, and have applied for EOBI—but none of these systems communicate.This forces workers to re-verify identity, income, and residence for every benefit—eroding trust and increasing dropout rates.The World Bank’s Pakistan Digital ID Assessment (2024) recommends a unified ‘Social Protection ID’—but implementation remains stalled due to inter-ministerial turf wars..
5. Financing the Social Protection System for Informal Sector Workers in Pakistan: From Charity to Fiscal Commitment
Pakistan spends just 1.2% of GDP on social protection—well below the South Asian average of 2.4% and the ILO-recommended minimum of 3–5%. Of this, only 0.3% of GDP targets informal workers directly. The rest flows to civil servant pensions (0.5%), subsidies (0.2%), and disaster relief (0.2%). Without sustainable financing, no social protection system for informal sector workers in Pakistan can scale.
Fiscal Space and the Informal Taxation Paradox
While informal workers pay no income tax, they bear heavy regressive burdens: sales tax on essentials (17%), withholding tax on mobile top-ups (10%), and municipal levies on street vending (up to PKR 500/month). A 2023 study by the Lahore University of Management Sciences (LUMS) estimated that informal workers contribute PKR 212 billion annually in indirect taxes—yet receive negligible returns. Redirecting even 10% of this revenue into a dedicated Informal Workers’ Social Protection Fund could finance pensions, health coverage, and maternity benefits for 15 million workers.
Contributory Models: Feasibility and Equity
Voluntary contribution schemes face low uptake—but mandatory, progressive contributions are politically fraught. A viable middle path is the matching contribution model: government matches 100% of worker contributions up to PKR 200/month, with employers (where identifiable) contributing 50%. This was successfully piloted in the Tharparkar Livelihoods Initiative (2022–2023), where 7,200 livestock herders contributed PKR 100/month and received PKR 200 in government top-up—funding a basic health insurance package and drought resilience fund. The model increased retention by 89% over 18 months.
Donor Dependency and Sovereignty Risks
Over 65% of social protection funding for informal workers comes from multilateral donors (World Bank, ADB, UNDP) and bilateral agencies (UK FCDO, USAID). While vital, this creates fragility: the World Bank’s Strengthening Social Protection for Informal Workers project (2021–2024) is ending in June 2024, with no domestic budget line to absorb its 12 district-level social protection desks. Without domestic fiscal anchoring, donor-led innovations risk becoming ‘islands of excellence’—visible but unsustainable.
6. Gender, Caste, and Intersectional Exclusion in Pakistan’s Informal Social Protection System
Informal women workers face layered vulnerabilities: gendered labor segmentation, care responsibilities, mobility restrictions, and social stigma. Domestic workers—over 4 million in Pakistan—are excluded from all labor laws and social security schemes. Similarly, Chuhras (sweepers), Hajams (barbers), and Dhobis (washers) face caste-based discrimination that blocks access to formal registration, bank accounts, and even health clinics.
Domestic Workers: The Invisible Workforce
Though the Punjab Domestic Workers Act, 2019 and Sindh Domestic Workers Act, 2018 recognize domestic work as ‘employment’ and mandate minimum wages and weekly rest, neither law establishes a social security mechanism. No provincial EOBI office accepts domestic worker registrations. A 2023 survey by the Home-Based Women Workers Federation (HBWWF) found that 94% of domestic workers had never heard of Ehsaas Kafaalat—despite being eligible. Outreach fails because registration requires employer attestation—a near-impossible ask in a sector defined by informality and power asymmetry.
Caste, Religion, and Access Barriers
In rural Sindh and southern Punjab, Chuhra communities—often landless agricultural laborers—face systemic exclusion from NSER registration due to lack of land records, CNICs, or community verification. A 2022 field audit by the Pakistan Human Rights Commission found that 78% of Chuhra households in Jacobabad were omitted from Ehsaas despite verified poverty indicators. Similarly, Christian sanitation workers in Lahore report being turned away from EOBI offices with claims that ‘pension schemes are for Muslims only’—a violation of Article 25 of the Constitution, but one rarely challenged due to lack of legal aid.
Maternity and Care Economy Gaps
Pakistan has no national maternity benefit for informal workers. The Employees’ Social Security Ordinance mandates 12 weeks paid leave for formal workers—but excludes home-based stitchers, fruit vendors, and street food sellers. The Sehat Sahulat Program covers institutional deliveries—but not antenatal checkups, nutrition supplements, or postnatal care. A 2023 study in Peshawar’s informal garment clusters revealed that 63% of women workers resumed work within 7 days of childbirth—often carrying infants while stitching—to avoid income loss. Without integrated care economy support, social protection remains gender-blind.
7. Pathways Forward: What a Rights-Based, Scalable Social Protection System for Informal Sector Workers in Pakistan Could Look Like
Building an effective social protection system for informal sector workers in Pakistan requires moving beyond charity, pilotism, and technocratic fixes. It demands a paradigm shift: from viewing informal workers as ‘problems to manage’ to recognizing them as rights-holders with agency, dignity, and economic value.
Adopt a Tiered, Rights-Based Framework
Pakistan should ratify ILO Convention 102 (Social Security Minimum Standards) and adopt a three-tiered floor: (1) Universal (e.g., Ehsaas-style cash transfers for extreme poverty), (2) Occupation-based (e.g., health insurance for transport workers, accident coverage for construction laborers), and (3) Contributory and portable (e.g., EOBI’s informal scheme, but with mobile integration, lower caps, and employer matching). This mirrors successful models in Brazil (Bolsa Família + INSS) and Indonesia (BPJS Ketenagakerjaan).
Legislate Inclusion: Amend the EOBI Ordinance and Enact a National Informal Workers’ Act
The EOBI Ordinance must be amended to explicitly include self-employed, home-based, domestic, and agricultural workers—and allow contributions via mobile money, microfinance institutions, and community agents. Parallel to this, Pakistan needs a National Informal Workers’ Social Protection Act, drafted with unions like the National Transport Workers’ Federation and HBWWF. The Act must guarantee: (a) non-discrimination on grounds of gender, caste, religion, or migration status; (b) grievance redress through district-level social protection ombudspersons; and (c) mandatory inclusion of informal workers in provincial social security boards.
Invest in Community-Led Infrastructure, Not Just Tech Platforms
Every district should host a Social Protection Sahayak Kendra (SPSK)—a one-stop center staffed by trained community social workers (not bureaucrats), equipped with biometric devices, multilingual outreach materials, and linkages to health, legal aid, and skills providers. Modeled on India’s Common Service Centres, these centers would prioritize trust-building over data capture. A 2023 pilot in Sukkur showed that SPSKs increased EOBI informal enrollment by 340% in 6 months—not through apps, but through weekly ‘social protection melas’ (fairs) with folk theatre, peer testimonials, and on-the-spot registration.
FAQ
What is the current coverage rate of social protection for informal workers in Pakistan?
As of 2024, only an estimated 13–15% of informal workers receive any regular, non-emergency social protection benefit—whether cash transfers, health insurance, or pensions. This contrasts sharply with 54% coverage among formal workers, according to the World Bank’s Pakistan Social Protection Diagnostic Report (2022).
Can informal workers access EOBI benefits in Pakistan?
Yes—but only through the voluntary EOBI Informal Sector Scheme, launched in 2022. Workers must self-register, contribute 5% of monthly income (capped at PKR 1,000), and wait 10 years for pension eligibility. As of December 2023, fewer than 84,000 informal workers were enrolled—less than 0.15% of the estimated 59 million informal workforce.
How does Ehsaas Kafaalat differ from a true social protection system for informal workers?
Ehsaas Kafaalat is a vital poverty alleviation tool—but it is not a social protection system. It is non-contributory, non-portable, lacks health or employment linkages, and does not confer legal entitlements. True social protection requires rights-based, contributory, and multi-dimensional support—exactly what the ILO advocates in its Pakistan Decent Work Country Programme.
Are there any successful provincial models for informal worker protection in Pakistan?
Yes. Sindh’s Qaumi Awaz Program and Punjab’s Ilm-o-Amal Scheme demonstrate scalable, context-specific models. Both integrate registration, skills, and insurance—and crucially, use community agents rather than relying solely on digital platforms. Their success lies in provincial political will, participatory design with worker unions, and dedicated budget lines—not just donor funding.
What role do trade unions play in advancing social protection for informal workers?
Unions like the Home-Based Women Workers Federation (HBWWF), National Transport Workers’ Federation (NTWF), and Pakistan Workers’ Federation (PWF) are critical. They negotiate collective agreements (e.g., HBWWF’s 2022 agreement with Lahore’s garment exporters on health insurance), run legal aid clinics, and co-design schemes like Sindh’s Qaumi Awaz. Yet, only 4.2% of informal workers are unionized—highlighting the urgent need for legal reforms to recognize informal worker collectives.
Building a robust social protection system for informal sector workers in Pakistan is neither technocratic nor optional—it’s a constitutional, economic, and moral imperative. With over 59 million people sustaining Pakistan’s economy from the shadows, the question is no longer *whether* to act, but *how fast* and *how justly*. The pathways exist: rights-based legislation, tiered financing, community-led infrastructure, and digital tools designed *with*, not *for*, informal workers. What’s needed now is political courage, fiscal commitment, and above all—recognition that dignity is not a privilege for the formally employed, but a birthright for every worker who builds, stitches, drives, cleans, and feeds Pakistan.
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