In July, salary disbursed through MFS stood at Tk4, 587 crore, which drastically fell to Tk1, 064 crore in August
When discussing digital payment of apparel workers' wages - lack of literacy, required documents such as national identification card (NID) to open accounts and a proper ecosystem - were cited as barriers.
Fortunately, the Covid-19 pandemic, which adversely affected the lives and livelihoods of millions of RMG workers as well as exports, brought a solution to this at last.
Amid the pandemic, about three million apparel workers opened accounts with the country’s mobile financial service (MFS) providers.
This has been possible due to the government's directive on implementation of a stimulus package to absorb the economic fallout of the pandemic.
The government announced a package of Tk5,000 crore to pay workers' wages for the export-oriented industries.
To ensure transparency, the government made it mandatory for stimulus receivers to pay the wages through digital payment gateways.
In availing the funds from the package, the factory owners compelled workers to open accounts with MFS providers.
According to the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), 2.5 million workers opened accounts in April.
This was an opportunity for apparel makers to pay digitally, which reduced operational costs and time.
However, despite having a ready infrastructure and ecosystem, most apparel owners backtracked from digital payment to their traditional disbursing methods.
This happened just after the government financial support to pay wages came to an end in July.
In July, salary disbursed through MFS stood at Tk4, 587 crore, which drastically fell to Tk1, 064 crore in August.
This sharp rise was driven by the RMG workers' wage payment.
MFS providers and apparel makers said the drop from July to August, from Tk4,587 crore to Tl1,064 crore, was due to owners’ return to traditional payments.
“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,” Shamsuddin Haider Dalim, head of corporate communications of bKash, told Dhaka Tribune.
“We have seen a 40% fall in digital salary disbursement,” he added.
“As the government and banks provided the cash-out charge, owners like me were willing to pay wages through MFS. Now, they are unwilling to pay as they have to bear the charge,” a factory owner, seeking anonymity, told Dhaka Tribune.
On the other hand, the workers also do not want to bear the cash out charges, he added.
However, Rubana Huq, the BGMEA president, offered a different perspective.
“If we look at the pre-pandemic scenario, 67% factories used to provide wages through cash, only 5% through MFS, 5% through bank transfer and the remaining 23% factories followed multiple modes of wage disbursement,” she said.
According to a research finding by the South Asian Network on Economic Modeling (Sanem), about 82% workers were paid digitally in May, which was only 28% in April.
As per the Bangladesh Bank directives, salaries from April to July this year were disbursed through a special arrangement via MFS. It was not done through a regular process as between a factory and MFS operator like bKash or Rocket, said Rubana.
A good number of factories are now paying wages through direct bank transfers to workers’ bank accounts. That means instead of MFS, many factories also switched to online bank payments. Now the reason behind such drop in wage payment through MFS could be that, said Rubana.
Why digital payment is crucial
For bringing transparency in payment and social compliance, digital payment is very important. It also reduces cost and time for the owners.
“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 s/he needs and there is no risk of carrying cash in hand,” Khondaker Golam Moazzem, research director at the Centre for Policy Dialogue (CPD) told Dhaka Tribune.
“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,” he remarked.
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.
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% 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,” SM Khaled, managing director of Snowtex, told Dhaka Tribune.
“We bear the cash-out charge. Although there is a cost, the benefits are higher,” he added.
"To pay 16,000 workers, I need to engage a big team of accounts, a car to carry cash - making it a very risky task, while production remains suspended during payment. But via MFS, that can be avoided,” Khaled explained
Meanwhile, MFS payment also helps to ensure social compliance set by the buyers.
“As a part of social compliance, we asked our suppliers to pay wages through MFS for ensuring transparency. It helps us to check if there are anomalies or not,” Ziaur Rahman, country manager of H&M for Bangladesh, Pakistan, and Ethiopia, told Dhaka Tribune.
"With the mandatory payment, 95% of our suppliers paid wages through MFS. We would not let them return to the manual system as our target is 100% digital payment by this year," he added.
However, experts said the drop in transaction raised a big question about the transparency of owners' wage disbursement, as they returned to the traditional payment system as soon as the government support ended.
“Cash can be lost, damaged or stolen. However, it is much safer in an electronic wallet (mobile). On the other hand, we can use it when it is needed and send it to our family members living in villages," Mousumi Akter, an RMG worker said.
"But bearing cash-out charges is a burden with our small income. Owners and service providers can jointly bear the cost. It can also be better to offer a special charge for us," she added.
Since the cost of cash-out is a burden for the workers, the owners are unwilling to bear the expenses of using MFS, while experts and factory owners called for the mechanism to adopt the system in the apparel industry.
“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, a director of Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), told Dhaka Tribune.
A system has already been developed; the government should take steps to retrain the digital payment for the sake of workers' rights and to move forward, said Moazzem.
To pay salary with government funds through MFS, the government and banks bore the expenses of cash-out charges.