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Digitized wage payment: RMG workers can enjoy a host of benefits

As part of the government push to build a cashless society, 90% of garment workers are supposed to be brought under the digital wage system by 2021.

Rubana Huq, President of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) has said that they would like to go for a cashless transaction to pay wages and salaries to workers to promote them to the next level.

Digital-wage-payment-rmg-worker
Figure 1: Digital wage payment has given birth to a range of benefits for both employers and employees.

Through digitalizing wages, efforts are being made to further promote financial benefits, such as cashback, reward points, and merchant discounts to the next level. Everything like overtime payment and leave will also be digitalized, Rubana said.

“Our main goal is to build digital Bangladesh. So, we hope our goal will be implemented overcoming all bureaucratic complexities,” she said.

The readymade garments (RMG) sector is the country’s primary foreign exchange revenue generator. Even though the sector is growing at high speed, workers cannot leverage this effectively because they lack access to suitable financial services and face security risks for receiving wages in cash.

The progress made in the field of technology has transformed banking from the traditional brick-and-mortar infrastructure of staffed branches to a system enhanced by other channels like automated teller machines (ATM), credit or debit cards, internet banking, online money transfers, etc. However, people of all sections of society don’t have access to such Digital Financial Services (DIFs).

challenges-Digital-cash-wages
Figure 2: Cost of paying wages in cash.

For this, financially excluded such as RMG workers, small entrepreneurs, etc., find an opening and maintaining bank accounts to be complex and time-consuming for want of awareness, accessibility and availability of targeted products.

As the journey from cash to bank-based wage payments is gathering pace, garment producing factories have discovered how digitizing wages can save time, reduce costs, increase transparency and empower workers by improving their access to finance.

Digital wage payment has given birth to a range of benefits for both employers and employees. The benefits include providing assistance in audits and supply chain accountability, ensuring transparency and the accuracy of workers’ payments, reducing the risk of loss or theft of wages for workers, an improvement in financial inclusion as well as increasing the ability to save, particularly for women workers.

According to a study, usually, the garment factories in Bangladesh follow cash payroll which causes production-loss of 750 hours and administrative time-loss of 542 hours per month just during the period of counting and disbursement of cash wages. However, in disbursing salaries, the factories which already adopted the digitized wage payment have been able to reduce overall time by between 32 percent and 80 percent for every worker per month.

Generally, production losses could be stopped to a large extent since workers spend less time away from the production line and employers require them to withdraw wages outside working hours.

By disbursing salaries among the workers through digital systems, the administration can avoid the security risk and expenses of transporting large amounts of cash from the bank for wage payment every month. Furthermore, it brings transparency and accountability in compliance monitoring in the wage payment practices in the RMG sector.

Digitalized platforms provide 60 percent fewer complexities compared to manual ones alongside real-time data, seamless monitoring and reviewing and recording variable component of salaries on top of the government-mandated base, allowing sounder decision-making, says a study.

Digitized wage payment creates an opportunity for workers to save their money in a secured manner as well as receive other banking services. Workers who come from low-income groups – a customer segment that the traditional banking system generally does not cater to.

Now workers, especially women, are gradually becoming more empowered to deal with their earnings by themselves because of receiving salaries through digital platforms. Studies show that with domination over their accounts, women can exert more control over their finances and more influence over household spending.

wage-digitization-benefits
Figure 3: Key benefits triggered by wage digitization in Bangladesh.

It’s good to mention that there is a stark gender gap in accessing financial services in Bangladesh where only 36 percent of women have a formal bank account compared to 65 percent of men. While more people overall are being financially included in Bangladesh, the benefit is being felt by men, not women. All tides are not lifting all boats equally.

Let’s see what is happening around the world. Nearly a billion women all over the world are economically excluded. They are unlikely to have their formal identification which means that they cannot own property.  They struggle to own businesses or secure the credit and insurance they need to run. They are more likely than men to be poor and have no job.

Research suggests that global growth rates are 1.1 percent slower because of women not being economically empowered. McKinsey suggests that $28 trillion in GDP growth is being left on the table worldwide because women are not reaching their full potential.

Zunaid Ahmed Palak, State Minister for ICT, said that they are dedicating services to coordinate, support and test innovative solutions to digitalize payroll to empower garments workers, particularly women (who represent the majority of the garment workers in Bangladesh).

“Wage digitization is an on-ramp to offering a broader range of financial services to low-income women,” said Diana Gooley, Manager of Digital Financial Services at Women’s World Banking.

Wage digitalization also improved the possibility of women to participate in household decisions related to spending and savings by 15 percent.

Usually, many workers are deceived by fake micro-credit or cooperative agencies in their localities. But in the banking system, workers can safely deposit their money and get access to secure financial products such as Deposit Pension Scheme (DPS) savings arrangements. Also, they enjoy payment options such as mobile banking to send money to their villages.

Since digitized wage payment is the new concept in Bangladesh, initially some factories found it difficult to implement this due to lack of experience. Besides, in the beginning, the workers, who have less or no literacy, were not comfortable with the use of digital platforms in receiving salaries. So, the authorities should underscore imparting training to workers on security measures such as not sharing the PIN with others and wrong transfer, etc.

Boosting access to, and usage of, mobile wallets in the garment worker sector can accelerate the growing trend of wage digitization and aid women’s financial inclusion. Less inclusive financial systems result in income inequality and slower economic growth.

According to a study, usually, the garment factories in Bangladesh follow cash payroll which causes production-loss of 750 hours and administrative time-loss of 542 hours per month just during the period of counting and disbursement of cash wages. However, in disbursing salaries, the factories which already adopted the digitized wage payment have been able to reduce overall time by between 32 percent and 80 percent for every worker per month.

Financial inclusion is considered crucial for a country’s economy and in enhancing welfare and ensuring consumption leveling amongst underprivileged people. Financial accounts maybe bank account, Microfinance Institution (MFI) membership, or Mobile Finance Services (MFS) accounts (World Bank Group, 2018).

Half of the population in our country is yet to get an opportunity to open accounts with banks due to which a gap has been created between the banked and the unbanked people when it comes to accessing services from the financial sector.

“MFS is not a choice for us any longer,” Rubana Huq said, adding that rather it is mandatory to ensure transparency of the sector.

Both the government and the central bank should take initiatives to provide cashback or incentive to customers for using digital tools in carrying out a transaction to attain sustainable economic growth. Such incentives can be applicable to widen the DFS. India, Nepal and many other countries have achieved tremendous success by using the policy, experts said.

The government may think of declaring 2021 as the year of digital payment on the occasion of the 50 years of its Independence.

If anyone has any feedback or input regarding the published news, please contact: info@textiletoday.com.bd

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