Results of a survey of Bangladesh’s garment workers have shown a massive shift towards paying workers digitally in May, followed by a slow decline in the share of digital payments in subsequent months. Let’s find out the reasons why.
Close on heels of the Government first declaring the stimulus package to help export-oriented industries to pay workers’ wages subsequent to the breakout of COVID-19 pandemic, digital disbursement of workers’ wages gained substantial grounds. At one point in time, around three million garment workers reportedly opened accounts with the country’s mobile financial service (MFS) providers as the Government made it necessary for stimulus receivers to pay the wages through digital payment gateways so as to maintain transparency.
“MFS is a hassle-free payment system, which reduces risk of carrying cash, management costs and time needed to disburse wages manually. A worker can use it when he/she needs and there is no risk of carrying cash in hand,” underlined Research Director at the Centre for Policy Dialogue (CPD), Khondaker Golam Moazzem, speaking to the media then, adding, “Women workers also can save and enjoy credit facilities based on certain conditions. It is a means to include unbanked people in the financial system.”
Apart from transparency, minimising risks of carrying cash and financial inclusion, there are other benefits to wage digitisation as well, and quite a few!
Shifting to digital payments benefits both employers and employees, while promoting stronger business relationships. As per reports, when payroll got digitalised, garment factories recorded a 53 per cent savings in staff time for their administration and finance teams. According to a study conducted in 2017 by the United Nations’ Better Than Cash Alliance, around 750 hours were lost in production per month in terms of cash disbursement at each factory, which suggested embracing the digitisation of wages for garment workers is one way to improve the inefficiency of cash payments. This not only creates a more secure payment method but also saves time, reduces costs and allows workers to access and track their own finances.
Digital wages in Bangladesh are most helpful for women, giving them security, empowerment and greater opportunity for investment, the study further added.
Also, to be considered in this direction is that digital financial services (DFS) also helped limit the spread of Coronavirus to some extent by creating an avenue for digital payments that facilitated social distancing protocols.
This was underlined by recent study by pi STRATEGY, which entailed surveying more than 1,000 people across Bangladesh and interviewing more than 30 senior officials of mobile financial service providers, banks, microfinance institutions, insurance agencies, among others.
DFS in Bangladesh has somehow managed to find a way to harness the ills of COVID-19 towards a fortuitous end, stated Pial Islam, Managing Partner of pi STRATEGY while Policy Advisor to a2i, Anir Chowdhury, on his part maintained, “I see this as COVID dividend and we are obviously in a dividend period.”
According to reports, a2i or Access to Inforrmation of the Prime Minister’s Office is a programme of the Government’s Digital Bangladesh agenda which specialises in introducing citizen-centric public service innovation to simplify public service delivery and improve the lives of citizens by increasing transparency, improving governance and reducing the time, difficulty and costs of obtaining government services.
However, irrespective of the multiple benefits of going digital, digitisation of the wage disbursement process seems to have lost much ground and appeal both amongst garment workers as well as the factory owners lately; but WHY?
Survey gets to bottom of things…
Results of a survey of Bangladesh’s garment workers have shown a massive shift towards paying workers digitally in May, followed by a slow decline in the share of digital payments in subsequent months. SANEM, a non-profit research organisation, in collaboration with Microfinance Opportunities, has been conducting a series of surveys on the garment workers of Bangladesh. The project is aimed at collecting data on the working conditions, income, expenditure, and financial tool usage of workers in the global apparel and textile supply chain. The main objective of this project is to aid informed policy-making and brand initiatives, with regular and credible data collection and analysis, which can have a positive impact on the lives of the garment workers.
An analysis of monthly data collected from April 2020 to October 2020 was conducted to study the ‘Factory Wage Digitisation Trends’ in Bangladesh as part of which phone interviews were conducted with a pool of 1,377 workers – over three quarters of whom were women – from factories in the five main industrial areas of Chittagong, Dhaka, Gazipur, Narayanganj and Savar.
The interviewees were asked to report the name of the factory that currently employs them, the payments they received and whether they were paid in cash or digitally. Further, the study divided the factories into two categories – ‘brand-facing’ and ‘not brand-facing’. A factory is categorised as brand-facing if it is listed on a brand’s supplier list or is listed as a supplier to a brand on the Mapped in Bangladesh (Mapped in Bangladesh is a digital map of the RMG industry that provides a detailed database of export-oriented RMG factories all over Bangladesh that have core RMG processes and are listed as members of major associations) or Open Apparel Registry websites (the Open Apparel Registry is a source map for identifying apparel factories and their affiliations).
Analysing the findings!
An analysis of the findings reportedly underlined that there was a considerable difference in the behaviour of factories on an individual level: some were digitised before May, some digitised temporarily while others never digitised. Another important conclusion was factories that are brand-facing were more likely to have been paying their workers digitally before May 2020. Furthermore, brand-facing factories that had been paying workers in cash before April were more likely to switch from cash to digital payment methods between April and May.
In April 2020, a total of 20 per cent of not brand-facing factories and 37 per cent of brand-facing factories were paying workers digitally; while in May 2020, the percentages increased sharply to 57 per cent and 85 per cent of not brand-facing and brand-facing factories, respectively.
For not brand-facing factories, the proportion of factories paying digitally reached its peak of 60 per cent in June and started to decline thereafter. The proportion declined from 60 per cent in June to 54 per cent in July and went further down to 45 per cent in August.
Meanwhile, for brand-facing factories, the highest proportion of factories paying digitally was recorded at 87 per cent in the month of July which declined to 76 per cent in August. By September 2020, only 40 per cent of not brand-facing factories and 73 per cent of brand-facing factories were still paying workers digitally.
“In paying wages manually, it causes a 20 per cent loss of production hours on the day. But in MFS, it does not take much time as we only provide the salary sheet to the service provider, and they send it to workers’ mobile wallet,” reportedly maintained Managing Director of Snowtex, SM Khaled speaking to the media earlier, adding, “To pay 16,000 workers, I need to engage a big team of accounts, a vehicle to carry cash – making it a very risky task, while production remains suspended during payment. But via MFS, that can be avoided.”
However, irrespective of all the positives that one gets from going digital, these have not apparently stopped the digitisation process from losing steam lately and, there’s many reasons to it.
Why wage digitisation process lost steam?
“One possible explanation was that the benefits of the digitalisation were not readily apparent to the factories, particularly because they had not completely replaced cash payments with digital payments,” underlined SANEM with an example.
For instance, some workers reported to have received their regular salaries digitally, but Eid bonus payments in cash, it explained.
Another reason that may have caused factories to shift back to in-cash payments is the unwillingness of workers to receive digital payments as most workers are not comfortable with receiving their payments digitally because of the high transaction costs associated with mobile banking.
“Workers are unwilling to pay cash-out charge against their wages, while it costs an owner, especially small and medium ones. In the given context, there should be a mechanism which can help the sector to adopt the digital payment system,” reportedly underlined Fazlee Shamim Ehsan, Director of Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) earlier.
Plus, there apparently is also no uniformity in terms of charges being levied for some services offered, amongst the various MFS players.
Recent media reports claimed that MFS providers have been charging customers at their whims as there is no policy guideline on uniformity of charges, thereby creating an unhealthy competition in the market while adding that despite the huge popularity of mobile financial services over the last decade, different MFS providers are still charging customers at different rates.
The reports further added that according to the market study, it has been learnt that leading MFS brand bKash charges Taka 18.50 for cashing out Taka 1000 while Nagad charges minimum Taka 9.99 while other providers charge Taka 15-18.50 on Taka 1000 cash out.
Also, to be considered with context to wage digitisation losing appeal among the garment workers is reportedly the fact that majority of the workforce comprises of women and they apparently have not sufficient knowledge regarding mobile financial and banking services. To add to it, since women are more likely to use their husbands’ bank account, receiving payments digitally reduces their decision-making power in household expenditures, some claimed.
So even if in plain sight, there does not seem reasons enough as to why digitisation process of wage disbursement would lose steam despite its numerous advantages, a little digging unravels there are various aspects associated with the same which in some way or the other play the spoilsport.