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Bangladesh’s RMG Sector is Shifting to Digital Wages. Here’s Why It Matters.

A push by Bangladesh’s government to build a cashless society plans to bring 90 percent of the country’s 3.6 million garment workers under a digital wage system by 2021.

The effort is being spearheaded by the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), a trade organization that represents factory owners in the readymade garment sector.

“We want to go for cashless transaction to pay wages to workers to upgrade them to next level,’’ Rubana Huq, president of the BGMEA, said at the Bangladesh Digital Wage Summit in Dhaka on Nov. 20.

The one-day event was jointly organized by the government’s Information and Communication Technology Division, the United Nations Development Programme and the United Nations-based Better Than Cash Alliance (BTCA), a multi-stakeholder initiative that includes fashion retailers such as Gap, H&M, Inditex and Marks & Spencer.

Already, 1.5 million garment workers receive their wages under the digitized system, Huq said. Another 2.6 million will soon join them.

Using digital and electronic payments instead of cash, according to the BTCA, has the “potential to empower workers” by improving their access to financial services, savings, credit and insurance. This, in turn, can result in additional economic opportunities and independence, particularly for the women who make up 80 percent of Bangladesh’s garment workforce.

A study by management consultancy Business for Social Responsibility found that women in Bangladesh with digitized wages were half as likely to report handing their salaries over to their spouses on a monthly basis. Shifting from cash to digital payments also improved the likelihood of women participating in household financial decisions by 15 percent.

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“However, to realize these positive impacts, it is vital to ensure responsible wage digitalization, considering the needs of women, who represent the majority of the garment workers in Bangladesh,” Huq said, adding that teaching workers about how the system works is vital.

Electronic payments can benefit employers, too. Transitioning from cash, the BTCA says, can “significantly increase” the security and efficacy of payments not only by saving time meting out payments but also minimizing productivity disruptions on payday.

Examples of wage digitization in Bangladesh, it says, show a 53 percent savings in time for administration and finance teams of participating factories in the first year of implementation.

By ensuring traceability of the payment process, digital payments can also reduce corruption, fraud and theft, according to BTCA. “This also makes it easier to check compliance with core labor standards and to measure how factories comply with the International Labour Organization’s decent work agenda in relation to living wages,” it wrote in a corporate paper.

Indeed, Nurul Majid Mahmud Humayun, Bangladesh’s minister of industries, noted at the summit that a central bank-supported digital wage system would empower workers, though he made less mention of the minimum pay protests that have roiled the country and the workplace safety issues that reportedly persist.

“We are committed to supporting the readymade sector to leverage new technologies that will improve the lives of garment workers,” he said. “These efforts will, in turn, accelerate the country’s economic growth.”

The move has the support of Bangladesh’s leading customers, including H&M.

“We will continue to support industry collaboration for scaling digital wages in Bangladesh,” Kiran Gokathothi, regional sustainability manager of H&M, said. “The move from cash to digital payments will help empower the garment workers, especially women, who represent the majority of the workforce.”

Bangladesh is the world’s second-largest garment exporter after China. Its $30 billion garment sector, which produces clothing for some of the biggest retailers in the world, accounts for 80 percent of the country’s export earnings.

However, the country’s apparel manufacturing sector has had a tumultuous year, with exports declining by 6 percent in the first quarter of fiscal 2019.

According to analytics firm GlobalData, which pegs the nation’s garment exports at $32 billion, Bangladesh could be at risk of missing its goal of exporting $50 billion of clothing by 2021 “if problems including downward pressure on price, poor infrastructure, reliance on cheap commodity garments and the prevalence of smaller less compliant sub-contractors continue to persist.”

Bangladesh’s reliance on low-cost, fast-fashion production could prove detrimental to it ambitions to catch up to, or even surpass, China, GlobalData says.

Hannah Abdulla, an apparel correspondent for the London-based firm, lauds Bangladesh’s “enthusiasm for growing its apparel exports” as “commendable,” though perhaps “unrealistic” for the time frame.

“While huge strides have been made in terms of worker safety, these are at the larger, better factories,” Abdulla said, noting the “swarm of sub-contractors” that swoop in to undercut bigger production facilities. Some fashion brands, she added, use this to their advantage as “leverage to force prices down at the good factories.”