Naheed Islam

Let Me Keep My Cash: The challenge of digitizing wages in Bangladesh’s garment sector

In the search for ways to jump-start the use of electronic money, some proponents are focusing on digitization of bulk payments by governments, businesses and NGOs. Digital payments can include wages and salaries, social support programs, emergency aid or even payments to suppliers. But, as InterMedia’s latest research into financial inclusion suggests, cashless bulk payments have to make financial and practical sense for both payers and payees (aka the “demand side”), or the shift to electronic payments may not get full buy-in.

We recently conducted focus group discussions with garment factory workers in Dhaka, Bangladesh, to understand – from the workers’ perspective – the potential for shifting to electronic payments in this large and significant manufacturing sector. The study, part of our larger Financial Inclusion Insights research program, is also feeding into a separate cost-benefit assessment of digitizing payments for these workers.

One key assumption we tested was that workers are inconvenienced and frustrated by a cumbersome process of queuing up to get paid in cash. In fact, based on what we heard in the focus groups, factories seem to have implemented various ways to successfully streamline the disbursement of cash payments, including instituting measures that reduce disruptions to productivity on payday. Focus group participants said they were generally satisfied with the payment process, which is handled in an orderly fashion that limits worker downtime to between two and 10 minutes.

Workers also expressed an affinity for getting paid in cash because it allows them to meet pending expenditures immediately. They were not receptive to the idea of their salaries being paid through a mobile money transfer because it would require them to visit an agent to get access to eagerly awaited cash. Workers also expressed concern about long lines, cash shortages and potential scams at agent outlets.

If digital payments are going to be appealing, they’ll need to make workers’ financial lives easier. The key is for financial inclusion stakeholders to create a digital ecosystem beyond the factory door. So we asked factory workers a series of questions about how they spend their salary within the first week of getting it and how they manage their finances, to see where the elements of an ecosystem could be focused.

Indeed, many factory workers identified a few key expenditures due on payday or within a week of it, including rent and utilities. Dry goods such as rice, beans, oil, salt and sugar are bought in large quantities – usually in cash – at the neighborhood store. Daily necessities such as soap and shampoo are bought on credit at the same store. This “corner store” owner keeps a running tab and accumulated charges are due as soon as workers get paid. Some of these types of payments may be made more convenient (and merchants’ and workers’ record-keeping simplified) through mobile money transfers. Products could be tailored to make the cash and credit relationship between worker and vendor easier to transact. Piloting these products specifically to garment workers may prove to be fertile ground.

The garment factory workers are a somewhat unique segment of the local population because they tend to live in close proximity to their places of employment, especially those who work in the special export processing zone in Savar. What’s more, most of their routine activities are conducted within a roughly 2-kilometer radius. Financial transaction points are generally in clusters near the factory and their residences. These may present ideal conditions for testing the onboarding of merchants and vendors situated within these geographic clusters to receive mobile payments from their clients – provided that suitable payment products can be developed, perhaps akin to Kopo-Kopo’s Lipa na M-PESA product available to merchants in Kenya.

We also discovered that, of those who saved money regularly, most deposited a specific proportion of their salary into a deferred savings plan, typically called a Deposit Pension Scheme (DPS) or a Factory Fund. Installments must be deposited on time and each month to reap the interest benefits. So when the workers receive their salaries, one of the first things on their minds is to go to the bank so they can meet their DPS payment deadlines. Of course, those who save in the Factory Fund can have the money deducted directly from their pay, but the downside of this option is that the funds aren’t portable – if the worker changes jobs, she/he has to cash out without getting the interest benefits. A payment system that allows workers to electronically transfer installments from their salary into a fully portable savings scheme may be appealing to workers.

My main takeaway from these early results of the garment worker focus groups: Assumptions about pain points in current salary payment methods, and links between payment and other transactions should be checked at the ground level before plowing ahead with new payment systems. The focus should be on how an electronic payment system fits into users’ lives and makes their financial transactions easier, both in getting their salaries and making transactions tied to them. That would constitute a truly user-centric model.

Naheed Islam Ph.D. is a researcher with extensive experience working on financial inclusion issues. She currently works as a consultant for InterMedia, where she is the team insights lead for its Financial Inclusion Insights (FII) program.

digital payments, financial inclusion, manufacturing, mobile finance