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From unbanked to fully digital? A look behind Bangladesh’s online money transfers

[By Mohammad Sahid Ullah]

COVID-19 has shown how some states, when motivated, can institute compassionate, sweeping and radical changes that remake society and its relations between workers and their organizations. However, integrating novel interventions into our everyday life demands that we think beyond the reactive impulse to address chronic problems. When technology is used as a short-term fix to address what appears to be an immediate problem, it can mask the need for more sustained institutional reforms. We see such a tension arising in the case of e-payments made to workers in the readymade garments (RMG) sector in Bangladesh, a measure that appears to be benevolent and timely, but on closer examination reveals a range of conflicts that have to do as much with issues of trust and perception as with technological readiness.

The fintech triumvirate to the rescue

In May and July 2020 the RMG sector in Bangladesh distributed Tk 10,500 crore  [$ 1,221 million] as salaries to 2.6 million workers. These were online transactions from the bailout funds from the government to tide the labourers over during the economic hardship brought on by the global coronavirus pandemic during this period. The three key mobile financial services – bKash, Rocket and Nagad – have been credited with enabling the disbursal of these sizable funds. 

According to the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), the apex body of Bangladeshi apparel industry owners, the vast majority of factories (1,821 out of 1,898) paid workers an Eid festival bonus, and 94 % of them have paid the salary for July through digital transactions. Although a section of RMG workers stated dissatisfaction for losses of 2 % from their payment because of online transactions fees for withdrawal of salaries and bonuses, various national dailies reported that most workers expressed satisfaction with the new system of payment. Amirul Hoque Amin, President of the National Garments Workers Federation, speaking on behalf of labourers, confirmed this, given the deep dissatisfaction that had pervaded across the industry in the South Asian region in the months immediately following the start of the pandemic, when workers experienced significant wage losses.

Image credit: UN SG’s Special Advocate for Inclusive Finance


BGMEA and the Ministry of Labour and Employment, with as many as 23 regional bodies of a national crisis management committee, worked together to monitor the progress of the payment to workers ahead of Eid-ul-Azha, the second largest religious festival in the country. They wanted to avoid labour unrest in the RMG sector especially before the religious festival.

Shift from the unbanked to mobile-banking

Before the Rana Plaza catastrophe, salaries were handed out in cash. Usually, during the first or in some cases within the second week of the month, they were distributed by the account department staff. It takes around 8-10 minutes to hand over cash for each worker according to Financial Inclusion Insights. Following the minimal wage movement by workers that was triggered by the disaster, BGMEA, and the Ministry of Labour and Employment of Government of Bangladesh along with the Garment Workers Federation decided to distribute salaries directly through bank accounts (the owner takes responsibility for disbursal of salaries). Although 50-60 % of factories started paying salaries through workers’ bank accounts, many unregistered factories (small and not affiliated with BGMEA) continued making cash payments.

Cancellation of orders by foreign buyers in the wake of the COVID-19 crisis has jeopardised the RMG sector, leading to the possibility of job losses affecting nearly 2.5 million people, mostly women. This crisis has led the BGMEA to seek assistance from the government for a bailout fund. To ensure transparency in fund distribution, the government sought a list of all workers and their bank accounts for transferring the salaries, but this time, directly to the workers—instead of going through the employers. Workers who did not have bank accounts, were asked to submit mobile money transfer accounts.

These varied demands clearly come with new challenges and require new strategies to reduce transaction costs. Where an intermediate agent is involved, a transaction fee of 2 % is charged, and this is borne by the recipient (the worker), whereas a direct transfer to the worker or a designated family member would not attract this fee. The issues go beyond this, including complete failures to deliver actual cash: In the case of mobile transfers, the recipient is required to show proof of the transaction to the agent who will then disburse cash, and if this message is accidentally deleted, or if the mobile is lost or stolen, it is impossible to collect the money. Some women workers may not even own a mobile phone, or not have control of their phones. There is also concern about the sustainability of such platforms given their narrow emergency focus. bKash, the largest mobile salary distributor, admits that workers showed interest in using mobile money if they could use it for more varied transactions than just money transfers.

Piloting the fintech experiment in times of crisis

To ensure the smooth payment of the wages, the government requested BGMEA to provide details of workers’ data early this year. Following the request, they handed over workers’ data of more than 3,000 factories across the country. The Bangladesh Bank (the country’s central bank) released money through 47 banks under a promotional package declared by the prime minister Sheikh Hasina for the RMG sector as part of the national COVID-19 bailout fund.

Reports from industry consortia as well as financial gateway operators suggest that a large number of workers indicated that they had received salaries through a digital money transfer, and the actual numbers reflected a big jump between April and May 2020—the time when the pandemic related lockdown began. However, this is curious, given that the World Bank’s Global Findex 2017 report indicates that only 50 % of Bangladeshis out of 164 million people had mobile banking and/or financial institution accounts as of 2017, of which only 21.2% have had mobile money accounts. Less than 2 % of RMG workers had such accounts. But the latest move has resulted in a sharp increase of mobile banking, with some estimating that around 95 % of the RMG workers have now either a bank account and/or a mobile account.

From emergency to sustainability

So what is the real issue at stake here? On the surface it appears that mobile money transfers have ensured some level of transparency and consistency in salary payments, and have moved a sizeable number of workers into the digital economy. But the 2 % transaction fee represents a burden on the worker and overall, a significant gain for the private corporations that enable the fund transfers. The National Garments Workers Federation, a left-wing workers’ union hold that the service fee cut from the wage is tantamount to the exploitation of poor workers through what they call ‘digital traps’. The Federation calculated a loss of around Tk 155 crore [$ 18.3 million] from the workers’ salary due to this digital transaction.

Image credit: WorldFish

There is no doubt that digital transfers have the potential to enable greater transparency and control for low income workers, but perhaps they would be more attractive if bundled with other digitally accessed welfare services. Concerns around sustainability and trust are legitimate and need to be addressed through more open communication between workers and employers, and clear working guidelines for the intermediaries, such as those that enable the digital transfers. This experience with mobile digital transfers suggests that work needs to be done to ensure readiness and smooth functioning at multiple levels—workers (including a consideration of the fact that most are women, who may not own their mobile devices), agents and other intermediaries, employers, and most importantly, government institutions and regulators.

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Hanging by a thread: The unraveling of the garment industry in Bangladesh

[By Mohammad Sahid Ullah]

Around 4.1 million workers of the Bangladeshi apparel industry that exports ready-made garments to more than 165 countries across the world is facing a severe crisis amid the COVID19 epidemic. Many of them continue working in factories, to meet shipment deadlines, defying the government shut down order. Meanwhile, many factory owners are hard-pressed to provide salaries for their workers as their overseas buyers have either cancelled their work order or have neglected to pay for products that has already been exported. In such a context, the Bangladesh apparel industry is in dire straits.

Garment workers in Bangladesh (image credit: UNSGSA/Ismael Ferdous)

Industry insiders are concerned that without new orders and payments due for current orders, factories cannot pay their workers’ wages and cannot remain operational. The Government of Bangladesh has announced bailout packages to help factory owners overcome the crisis. However, most workers have yet to receive their month salary via Nagod (cash), an online-based wage payment system initiated last month. The World Justice Project, that works for the protection of fundamental labour rights expressed concern about the safety and non-payment of workers, mostly women working in more than 3,200 garments factories in two major hubs – Dhaka and Chittagong.

Even when workers are protected from physical risks, factory owners exploit lax labour regulation to skip paying benefits, design grueling production schedules with no rest days, and otherwise ignore the terms of employment contracts. The Sramik Karmachari Oikya Parishad (SKOP), a platform of 11 labour rights bodies, demanded that all industrial units in the country, including garment factories, ensure proper safety measures to protect workers from getting infected with COVID-19.

The Bangladesh Garment Manufacturers and Exporters Association (BGMEA), the apex body of this sector, could not take hardline decisions with regard to salary payments and the opening of the factories due to pressures from owners and overseas buyers. Amid the crisis, garment workers are protesting on the street in different industrial areas including Ashulia, Savar at Gazipur and Kalurghat and Nasirabad in Chittagong to press the government and authorities concerned to disburse their salaries before Eid ul Fitar, the biggest Muslim religious festival, scheduled to be celebrated in a few days (24th /25th May) via the online payment system. New technological platforms are coming to the aid of these protests such as blockchain technology to help in the monitoring of factory safety in global supply chains management.

Though layoffs had been approved under section-11 of the Bangladesh EPZ Labor Act, there continues to be serious tensions in this deployment of layoffs given that trade unions prevail in 90 percent of factories and the communications  between workers and industry management are currently fraught. Workers are thus seeking support from different stakeholders including the Ministry of Labour and Employment and BGMEA to pay dues from the Central Fund. The fund for the welfare of garment workers came into being in 2017 to which garment exporters have been contributing 0.03 percent of their export receipts.

This crisis in the garment sector has accelerated many disruptions: for instance, mobile payment platforms in Bangladesh are at last getting diversified, giving consumers choices. However, for this system to land on its feet, it needs to allow for fair competition. Nagad’s leveraging of the post-office makes sense and capitalizes on traditional and much used outlets, reducing costs in return; however, it also appears to bypass safeguards that other mobile payment systems are subjected to such as mandatory profiles of registrants to prevent money laundering. New technologies like blockchain are being repurposed to align with the self-organized labour protests and profile them and their interests within the larger global supply chain; however, it takes more than just digitization to encode the plight of the workers from “cogs in a broader supply chain” to ethical human-centered value chains. When it comes to the shameful abdication of responsibility of certain brands that can result in devastating disruption for the industry, there is hope that this can stir a global moral conscience and ride on a global outrage for redesigning of responsible business ecosystems that prioritize people over profit.