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Wage digitization in apparel sector: Triggering financial inclusion

RMG sector of Bangladesh recently underwent myriad strides in the area of wage and associated avenues. However, there exists another avenue to be looked into if we want the wage issues to be efficiently streamlined.

apparel Wage digitization
Figure 1: Electronic payments have the potential to help companies improve their bottom line while making life better for workers.

It is the efficiency of salary payment through electronic or digital gateways. It has been evident in empirical and cross-country studies that disbursing salary-money to the garments workers through digital platforms can ensure substantial efficiency gain for the factories.

There are numerous forms of payments incurred for a business ranging from loan repayment to capital machinery import and many more.

Wage payments constitute approx. 27% of the total value of business payments in Bangladesh, representing nearly US$40.4 billion transactions per year, according to ‘The Case for Wage Digitization in Bangladesh’s Garment Factories’ published in Financial Inclusion Insights, in September 2016. Of them, only US$1.3 billion transactions take place through banking or other relevant channels per year.

However, 90% of the values of salaries are still paid in cash by businesses, demonstrating the significant potential for businesses to realize cost savings and increased efficiencies while helping to build an inclusive digital ecosystem for Bangladesh.

The ray of hope is the journey from cash to electronic payments in Bangladesh’s garment sector is gathering pace as garment production factories discover how digitizing wages can save time, reduce costs, increase transparency, and empower workers by improving their access to finance.

In short, electronic payments have the potential to help companies improve their bottom line while making life better for workers, especially for women who represent 80% of the garment workforce in Bangladesh.

Wage payments constitute approx. 27% of the total value of business payments in Bangladesh, representing nearly US$40.4 billion transactions per year.

A diagnostic survey, carried out by the World Bank, quantified the cost and time savings of digital payments compared with cash, and measured employees’ payment preferences, based on interviews and self-reported data shared by 21 factories in Bangladesh.

The study highlighted the opportunity cost of loss production borne by factories when wage disbursement is made in cash. It estimates that each worker spent on average 18 minutes per month off the production line to receive their wages in cash. This equates to 750 hours of lost revenue from production per month for a factory with 2,500 employees.

While administrative employees spent 13 minutes per worker per month on preparing salary sheets, counting money, and overseeing cash payments totaling 542 hours each month for the average factory. Moreover, the study estimated that cost of wage payments in cash per worker is around US$0.44 per month.

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

In 2019, another study surfaced that factory owners face multiple challenges with cash-based disbursements, the most pertinent of which is risks of transporting Tk 15-20 crore every month.

The study found that roughly a million apparel workers are now digitally receiving salaries from 200-250 factories such as Noman Group, DBL Group and Mohammadi Group.

The study, additionally, reported that 82.5% of the digitized factories were saving a significant amount of time during wage analysis and salary disbursement.

The interviewed factory managements stated that digitized platforms provide 60% fewer complexities over manual ones alongside real-time data, seamless monitoring and reviewing and in recording variable component of salaries on top of the government-mandated base, allowing sounder decision-making.

So, the key benefits triggered by wage digitization in Bangladesh are followings in short:

  • Efficiency & time savings: Total time savings are significant for factories that moved to digital wage payment.
  • Employees’ payment preferences: Factories that moved to electronic wage payments registered high levels of employee satisfaction about the shift.
  • Transparency, security, financial inclusion: Digital wage payments also yielded a range of other benefits for both employers and employees including transparency in audits and supply chain accountability, the accuracy of workers’ payments, reducing the risk of loss or theft of wages, increased financial inclusion and financial capabilities of workers, etc.
wage digitization benefits
Figure 3: Key benefits triggered by wage digitization in Bangladesh.

It is encouraging to share that ICT Ministry and Bangladesh Garment Manufacturers and Exporters Association recently signed a preliminary agreement to create and launch a digital payment gateway (digital wallet) within a few months that will allow workers to access their cash through an app alongside connecting merchant and banking networks, startups and service providers.

The digital wallet will provide a vendor-neutral platform for wage digitization and digital transactions. It will facilitate interoperability with all participating financial institutions for fund access or transfer as well as cash in or cash out, etc.

This will help create a merchant network for providing goods and services at discounted rates. The digital wallet will ensure secured recordkeeping, financial reporting and KPIs as required.

Following benefits will be derived from creating a digital wallet:

  • Transparency of wages paid to RMG workers
  • Financial benefits such as cashback, reward points and merchant discounts to increase the value of wages received
  • Ability to receive funds from corporate social responsibility (CSR), social security scheme and other sources for targeted usage, such as health/medical, education, childcare, etc.
  • Ability to access and transfer funds as well as cash in/out from any participating financial institution
  • Ability to make digital payments for utility services such as electricity, gas and water
  • Access to financial services including credit and insurance
  • Enhanced worker safety and security by reducing cash usage


With every opportunity there comes challenge. Since the digitization of these did not happen overnight, convincing both the owners and workers, given multiple impediments related to wage digitization, is somewhat challenging.

Therefore, to implement wage digitization more effectively, it is imperative to understand the diversity of digitization in the apparel sector and that each type of factory has its own incentives behind choosing a certain DFS system.

  • Major challenge with the transition process was that the costs associated were higher than initially expected. Most first movers did not have a clear idea about the costs associated with the transition and had not embarked on any in-depth cost-benefit analysis before digitizing.
  • The current limits on the amount of transactions have been identified as a challenge for mobile money to become a norm for the sector. Industry experts have identified the current transaction limit as a barrier for more factories to digitize their payments. After the increase in the minimum wage, there will most likely be a need for revisiting the current regulations of transaction limits for the sector to benefit the efficiency of digital payments.

To combat the aforesaid challenges to some extent, digital financial service providers need to expand the ecosystem to increase adoption among workers while factories must have enough options to digitize at a realistic rate with a service provider that suits them.

Furthermore, Digital advocates among large suppliers and hosting platforms for knowledge sharing are required alongside training for workers on tech literacy by stakeholders to make a smoother transition.

For instance: bKash helped 180 factories to digitize in the last two years to benefit over 200,000 workers. Moreover, bKash itself bears the 1.85% transaction charge in 90% of the factories while jointly with the factory owners in the rest, meaning workers do not lose any money while availing the services.

It is well evident that financial inclusion in Bangladesh is highly needed to access to the full range of financial services at an affordable rate for everyone ranging from the marketplace to the management.

In this connection, the digitization of garment factory worker wages will have the potential to ease this situation on multiple fronts, both from the management and worker perspective.

Lastly, if the digital payment ecosystem develops, a wider range of products will become available to factories and workers alike. Further research and dialogue, particularly between companies, the financial sector, and government policymakers will be vital to drive the progress.

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

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