Insurance companies are mounting a vigorous lobby for amendments to the Public Financial Management (PFM) Act, aiming to dismantle the long-standing monopoly commercial banks hold over the issuance of contract guarantees for government projects.
Under the current PFM framework, state agencies and public institutions are mandated to accept only bank guarantees—such as bid bonds, performance bonds, and advance payment guarantees—as security for procurement contracts. Insurers argue that this legal bottleneck artificially locks them out of a lucrative market, despite possessing the financial capacity and regulatory backing to underwrite these exact same risks.
Industry players contend that the bank-only policy places an unfair financial burden on local contractors and businesses. Securing a traditional bank guarantee often requires companies to lock up a significant percentage of their working capital as cash collateral, or endure steep processing fees. For many small and medium-sized enterprises (SMEs), this effectively prices them out of competing for state contracts.
Insurers say they offer a more capital-efficient alternative. Because insurance guarantees are backed by the insurer’s overall capital base rather than a specific cash deposit from the client, they can be issued at a fraction of the cost and without freezing the contractor’s cash flow.
“The current system ties up vital capital that businesses could otherwise use to execute the very projects they are bidding for,” noted a top executive at a leading insurance firm. “We have the solvency margins and the regulatory approval to issue these guarantees; the only thing stopping us is an outdated clause in the PFM Act.”
The insurance sector is now calling on the Ministry of Finance and Parliament to initiate the necessary legislative reviews. They are pushing for the PFM law to be explicitly revised to state that “guarantees” include those issued by registered insurance companies, thereby forcing government agencies to accept them on par with bank-issued instruments.
Stakeholders within the insurance industry emphasize that breaking this monopoly is not merely about expanding their market share, but about fostering a more inclusive economy. They argue that introducing insurance guarantees into public procurement will drive down the cost of securing contracts, boost competition among financial institutions, and ultimately ensure that government infrastructure projects are executed more efficiently.
