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After Digital Wage Push, Why Are Bangladesh Factories ‘Sliding Back to Cash?’

Mere months after Bangladesh’s garment industry embraced digital wages for workers at the height of the coronavirus pandemic’s first wave, factories are backsliding to cash payouts, a new study has found.

Despite a “massive shift” to digital payments in May, Microfinance Opportunities, in collaboration with the South Asian Network on Economic Modeling (SANEM), found that mobile banking’s higher transaction costs coupled with workers’ unwillingness to receive digital payments have halted and even rolled back progress.

Not all factories behaved the same way, however. Several were already digitized, others never digitized and some digitized and then reverted to cash. One “striking driver” of a factory’s response to the digitization trend, the report found, is whether it is brand-facing—that is, it appears on a brand’s supplier list or is named as a supplier to a brand on the open-source Mapped in Bangladesh or Open Apparel Registry platforms—or not.

Brand-facing factories are more likely to have paid their workers digitally before May 2020, and if they weren’t doing so, were more likely to transition from cash to digital between April and May, the report said. Though factories in both categories have since turned back to cash, nearly 75 percent of those that are brand-facing were still paying digitally in September compared with 40 percent of their non-brand-facing counterparts.

Before the pandemic, Bangladesh lawmakers, in partnership with the Bangladesh Garment Manufacturers and Exporters Association, were pushing to bring 90 percent of the South Asian nation’s 3.6 million garment workers under a digital wage system by 2021. Using digital and electronic payments instead of cash has the “potential to empower workers” by improving their access to financial services, savings, credit and insurance, according to the United Nations-based Better Than Cash Alliance, a multi-stakeholder initiative that includes fashion retailers such as Gap, H&M, Marks & Spencer and Zara owner Inditex.

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Nonprofit BSR’s HERproject initiative also found evidence that digital wages can help factories increase business efficiency by reducing processing costs and lost worker production time, prevent wage theft and promote financial inclusion and economic empowerment for women.

“So our data present[s] a puzzle: why are factories sliding back to cash? We need to do more work on this, but one possible explanation is that many factories never fully abandoned cash, they simply added digital payments to their cash processes,” Microfinance Opportunities and SANEM’s study said, noting that workers have been reporting some payments in cash and others digitally. “This was especially the case in July when many workers received their regular salaries digitally but other, Eid-related payments in cash.”

The data suggests that policy makers who seek the digitization of payments through third parties should not assume that factories are able or willing to make the shift, “even if incentives are high,” the report said, noting that the government’s stimulus package to support temporarily laid-off workers during the country’s Covid-19 lockdown in April was distributed digitally, giving the trend its temporary boost. Nor should it be a given that the benefits of digitization will be “immediately apparent,” particularly if digital payments are being made in conjunction with cash payments rather than completely replacing them.

The groups, which conducted the study under a project known as the “Garment Worker Diaries,” obtained their results by surveying 1,377 workers employed in factories across the main industrial districts of Chittagong, Dhaka City, Gazipur, Narayanganj and Savar between April and October.