Ninety per cent garment workers are supposed to be brought under the digital wage system by 2021 as part of the Government push to build a cashless society.
“We want to go for cashless transaction to pay wages to workers to upgrade them to next level,’’ stated BGMEA President Rubana Huq in 2019 at the panel discussion of Bangladesh Digital Wage Summit, during which the Government and the private sectors committed to work together to solve the challenges in ensuring all garment factories pay their workers digitally.
The summit discussed issues faced in making cash payments for both the garment employees and manufacturers, and how digital payments are beneficial for both the parties, in terms of security, efficiency, empowerment and independence.
Shifting to digital payments benefits both employers and employees, while promoting stronger business relationships. As per reports, when payroll got digitalised, garment factories recorded 53 per cent savings in staff time for their administration and finance teams. Wage digitalisation also improved the likelihood of women to participate in household decisions related to spending and savings by 15 per cent.
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.
With passage of time, more factories started digitising the wage disbursement process. A World Bank study in 2019 found that about one million garment workers were receiving digital wages, constituting about 200-250 factories with most businesses preferring to still pay 90 per cent of the value of salaries in cash, leaving room for expansion of the digitisation of wages in more settings.
Also Read: SMEs in Bangladesh: In for some good time?
The efforts towards digitising the workers’ wage disbursal process got a further boost this year when the Bangladesh Government, following the outbreak of the coronavirus pandemic, rolled out a Taka 50 billion bailout package to help all export-oriented sectors pay workers’ wages, which made necessary digital disbursement of wages if apparel exporters are to take advantage of this scheme.
To ensure transparency, the Government made it mandatory for stimulus receivers to pay the wages through digital payment gateways.
Despite the fact that only 9 per cent garment units reportedly paying workers through MFS and 4 per cent through banks, digitising the wage disbursal process got a leg up as around 19.20 lakh MFS accounts were created within the first couple of weeks of April itself. According to the BGMEA, 2.5 million workers opened accounts in April.
“MFS is a hassle-free payment system, which reduces the risk of carrying cash, management costs and time needed to disburse wages manually. A worker can use it when s/he needs and there is no risk of carrying cash in hand,” underlined Khondaker Golam Moazzem, Research Director at the Centre for Policy Dialogue (CPD), while speaking to the media. He added, “Women workers can also save and enjoy credit facilities based on certain conditions. It is a means to include unbanked people in the financial system.”
From the perspective of buyers, owners and workers, the biggest positive aspect of paying wages digitally is transparency. No one can hide information in the system, said Moazzem, while adding that how much a worker receives as monthly wages or for extra duty (overtime), and whether s/he gets it as per the law, can be easily identified in MFS or payments through the banking system.
“In paying wages manually, it causes a 20 per cent loss of production hours in a 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,” SM Khaled, Managing Director, Snowtex said, 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, the boost that digital disbursement of wages got following the Government’s rollout of the package did not last long as salary disbursed through MFS fell to Taka 1,064 crore in August from that of Taka 4, 587 crore in July. And this happened just after the Government financial support to pay wages came to an end in July.
“Mandatory payment of wages through MFS was effective until July. When the payment of the stimulus package ended, a good number of factory owners returned to traditional payment,” said Shamsuddin Haider Dalim, Head of Corporate Communications at bKash, adding, “We have seen a 40 per cent fall in digital salary disbursement.”
bKash is a mobile financial service in Bangladesh operating under the authority of Bangladesh Bank as a subsidiary of BRAC Bank Limited. bKash started as a joint venture between BRAC Bank Limited, Bangladesh, and Money in Motion LLC, USA in 2010. In April 2013, International Finance Corporation (IFC), a member of the World Bank Group, became an equity partner and in March 2014, Bill & Melinda Gates Foundation became the investor of the company. In April 2018, Ant Financial (Ali Pay), an affiliate of globally reputed Alibaba Group, became an investor in bKash – is one of the leading Mobile Financial Services providers in the world.
Further, according to a research finding by the South Asian Network on Economic Modeling (Sanem), about 82 per cent workers were paid digitally in May, which was only 28 per cent in April.
“If we look at the pre-pandemic scenario, 67 per cent factories used to provide wages through cash, only 5 per cent through MFS, 5 per cent through bank transfer and the remaining 23 per cent factories followed multiple modes of wage disbursement,” said Rubana Huq, adding that a good number of factories were now paying wages through direct bank transfers to workers’ bank accounts, which means instead of MFS, many factories switched to online bank payments to explain the reason behind the significant drop in wage payment through MFS.
However, as per many industry insiders, there are other issues too that have contributed to this fall in volume of MFS disbursement of salary.
“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,” Fazlee Shamim Ehsan, Director, Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), told the media.
Meanwhile, as part of efforts to encourage cash-free dealings, the mobile financial services or MFS providers in the country are also introducing interoperable transactions. Once the interoperable services are fully operational, it will allow money transfer between different MFS providers like bKash, Nagad, Rocket and other firms.
The customers will also be able to make transactions between banks and the MFS service providers through the National Payment Switch. The Bangladesh Bank made the announcement in this direction recently, fixing the rates of fees and setting other rules.
An MFS firm will have to pay 0.8 per cent of the money received from another firm.
The company from which the customer sends the amount will get the fees. The fees will be 0.45 per cent for transactions between banks and MFS companies.
The customers will not have to pay the new fees. The fees to withdraw money remain same.
Initially, BRAC Bank’s bKash, Islami Bank’s MCash, United Commercial Bank’s UCash, Al-Arafah Islami Bank’s Islamic Wallet, and Pubali Bank are joining the services and those yet to prepare for the launch would reportedly start providing the services within 31 March 2021.
Considering the various advantages of digital disbursement of wages, which includes most importantly transparency, digital disbursement of wages can be beneficial for workers and entrepreneurs alike and should be popularised further to reap its benefits and give it a further boost.