Most RMG factories revert back to cash payments: SANEM

Most factories are reverting back to cash payments due mainly to higher mobile banking’s transaction costs and workers’ unwillingness to receive digital payments, says a study.

The government stimulus package that had been announced to support temporarily laid-off workers through digital payments in response to the Covid-19 lockdown initially stirred the digitisation process in factories.

However, despite the high benefits of digitisation such as decreased payroll processing costs and lost worker production time and enhanced security associated with digital payments, factories are reverting back to cash payments, according to the study on factory wage digitisation trends released by the South Asian Network of Economic Modeling (SANEM) on Sunday.

The study was conducted from April 2020 to October 2020 by interviewing 1,377 workers over phones. Of the workers, over three quarters of whom were women, from factories in the five main industrial areas of Bangladesh (Chittagong, Dhaka City, Gazipur, Narayanganj, and Savar).

One possible explanation cited in the study was that the benefits of the digitization were not readily apparent to the factories, particularly because they had not completely replaced cash payments with digital payments.

For instance, some workers reported to have received their regular salaries digitally, but Eid bonus payments in cash. Another reason that may have caused factories to shift back to in-cash payments is the unwillingness of workers to receive digital payments. Most workers are not comfortable in receiving their payments digitally because of the high transaction costs associated with mobile banking and having insufficient knowledge regarding Mobile Financial and Banking Services. Moreover, since women are more likely to use their husband’s bank account, receiving payments digitally reduces their decision-making power in household expenditure, according to the study.

A common trend that was noticed in the analysis was a massive shift towards paying workers digitally in May, followed by a slow decline in the share of digital payments in the subsequent months. However, there was a considerable difference in the behaviour of factories on an individual level: some were digitised before May, some digitised temporarily while others never digitised. Another important conclusion that can be derived from the analysis is that factories that are “Brand-Facing” were more likely to have been paying their workers digitally before May 2020, it said.

Furthermore, it said, “Brand-facing” factories that had been paying workers in cash before April were more likely to switch from cash to digital payment methods between April and May.

In April 2020, 20% of “Not Brand-Facing” factories and 37% of “Brand-Facing” factories were paying workers digitally while in May 2020, the percentages increased sharply to 57% and 85% in “Not Brand-facing” and “Brand-Facing” factories respectively.

For “Not Brand-Facing” factories, the proportion of factories paying digitally reached its peak of 60% in June and started to decline thereafter. The proportion declined from 60% in June to 54% in July and went further down to 45% in August.

On the other hand, for “Brand-Facing” factories, the highest proportion of factories paying digitally was recorded at 87% in the month of July which declined to 76% in August. By September 2020, only 40% of Not Brand-Facing factories and 73% of Brand-Facing factories were still paying workers digitally, according to the findings.