A new revolution has ignited in the country’s fast-growing garment industry with bKash, the leading mobile finance services (MFS) in Bangladesh as this unique tool helps low-income garment workers to remit money to their families in villages quickly and comfortably.
More than one million workers in 1,100 factories are disbursing salaries and allowances to over a million workers, mostly women through bKash’s digital payroll solution. Factory owners say this innovation has reduced the cost of their production while workers find ample scopes to earn more revenues.
This has been reflected in a survey titled “Digitizing wages payments in Bangladesh Garments Production Sector conducted by ‘Better Than Cash Alliance’ which showed how digital wage disbursement in the Readymade Garment sector of Bangladesh has a positive impact on production and is changing lives through multifaceted impacts of financial inclusion.
Digital salary disbursement increases awareness among the beneficiary workers and gives them a better orientation of technology. As a result, the workers become financially independent and empowered. This system creates opportunity for workers to plan better for the future. Salary disbursement through MFS creates a broader scope of financial inclusion, especially for women. The salary disbursement through bKash enhances the transparency and accuracy of the factory which creates a better relationship between the authority and the workers.
Traditionally, a factory needs 18 minutes in a month to disburse the salary of a worker. That means, 750 working hours are wasted for salary disbursement in a factory that consists of 2500 workers. That poses a huge revenue loss. On the contrary, the salary disbursement authority needs 13 minutes in a month to distribute the money. That means it consumes 542 hours of production time for a factory in the traditional system. Factories also require extra safety arrangements to disburse salaries in cash. Salary disbursement through MFS creates a broader scope of financial inclusion, especially for women.
A report published in a daily says bKash has been setting up ‘fair price’ shops ‘Sulov Bazar’ and Apon Bazar’ at different factory premises where workers can buy daily essentials at lower prices through bKash payment. It is also working on installing sanitary napkin vending machines for female workers in different factories. Besides, bKash has been conducting research and training programs to make the workers aware of their financial management.
Digital salary disbursement increases awareness among the beneficiary workers and gives them a better orientation of technology. As a result, the workers become financially independent and empowered. This system creates opportunity for workers to plan better for the future. Salary disbursement through MFS creates a broader scope of financial inclusion, especially for women and enhances the transparency and accuracy of the factory which creates a better relationship between the authority and the workers.
In 2022, around 54 per cent of the garment workers in Bangladesh were paid through mobile financial services in February and the rest through cash, research finds. For their work in December, female workers got an average salary of Tk 12,000 while it was Tk 12,500 for male workers, according to the report prepared by the South Asian Network on Economic Modeling (Sanem) in collaboration with USA-based non-profit organisation Microfinance Opportunities (MFO).
The Sanem and MFO collected data from 1,300 garment workers every week since April 2020 as part of research titled "Garment Worker Diaries" to understand their living standards. These workers are employed in factories spread across five main industrial areas of Bangladesh: Chittagong, Dhaka City, Gazipur, Narayanganj, and Savar. Three-quarters of the survey respondents are women, which roughly represents the composition of the labour force in the RMG sector as a whole.
It’s a new revolution in the country’s financial spectrum against poverty which moving fast across the globe from Nairobi with impressive success stories began in Nairobi at a time when the Bangladesh Bank is going to build a cashless society by launching digital banks. The central bank has already decided in principle to extend digital banking licences to eight firms. Of the entities, Nagad Digital Bank PLC and Kori Digital PLC received letters of intent from the central bank, which will allow them to commence digital banking operations.
Poverty remains a formidable obstacle on Bangladesh's journey to becoming a Smart Nation, with a poverty rate of approximately 24.3% and an extreme poverty rate of 12.9%. The per capita income has fluctuated over the years, reaching an all-time high of $1684.43 USD in 2021. Meanwhile, national-level poverty has declined to 18.7%, with rural areas experiencing a 20.5% poverty rate and urban areas at 14.7%, according to the Household Income and Expenditure Survey 2022. Extreme poverty, too, persists at 5.6%, with rural areas facing 6.5% and urban areas at 3.8%.
The success in poverty reduction can be attributed to a combined effort involving the government, private entrepreneurs, NGOs, banks, fintech companies, and a strategy known as financial inclusion. Notably, this momentum gained traction after the advent of MFS operators like bKash, a mobile financial service provider that has become a game-changer for the poor and low-income people in Bangladesh since 2011.
Poverty alleviation depends largely on empowering individuals to manage their finances effectively. Bank accounts have emerged as a powerful tool in this regard. These accounts help people escape poverty and cope with unexpected expenses, providing financial stability. Many farmers in Bangladesh remain unbanked, relying solely on cash. Studies have shown that farmers increase their investments in harvests, earnings, and household consumption when their payments are deposited into savings accounts. Account-based digital payments represent an innovative approach to tackling poverty. Distributing social benefits through digital channels, rather than cash, has been shown to reduce corruption, increase efficiency, and enable recipients to build savings. In Nepal, savings accounts empower women to invest in education and nutritious food.
The impact of MFS on poverty reduction in Bangladesh has been profound. Poverty rates started decreasing in 2011, coinciding with the introduction of mobile financial services. The President of the World Bank, Mr. Jim Kim, in 2016 during his Dhaka visit attributed this decline to the multifaceted impact of MFS, led by bKash, the largest MFS operator in the country with nearly 60 million subscribers, predominantly from rural and remote areas. He commended bKash for its "low fee-based business model" and its role in enabling millions of unbanked individuals to access financial services.
This success transformed the vision of financial inclusion into a reality. A study by the Bangladesh Institute of Development Studies (BIDS) reveals that the country's rural economy has exhibited remarkable resilience, with a growing share of non-farm activities contributing significantly to rural income. This shift is attributed to improved access to capital, credit, and skill-building opportunities available in the non-farm sector.
In this evolving financial landscape, MFS serves as an innovative payment system, allowing individuals to conduct financial transactions and money transfers from the comfort of their homes. Its cost-effective nature has boosted disposable incomes and provided a secure means of storing cash, even for those engaged in the informal economy.
As the future of the battle against poverty hinges on effectively meeting the financial needs of the most vulnerable populations, it remains to be seen whether MFS will maintain its pivotal role in future as the country is getting some digital banks soon to provide similar services. Only time will reveal whether MFS or digital banks will lead the way in this transformative journey.
(The writer is the Editor of THE BANGLADESH EXPRESS and the Chairman of the Bangladesh Journalists’ Foundation For Consumers & Investors (BJFCI).
