Select Bangladesh garment workers will soon see their salaries paid electronically as part of a newly launched two-year research project to analyze how electronic wage payments will affect workers’ financial behavior.
American non-profit Innovations for Poverty Action (IPA), has partnered with City Bank in conducting the field experiment to study whether switching workers currently paid in cash to electronic payroll systems can encourage the use of formal financial services.
“Around the word, half of the adult population does not have a bank account at a formal financial institution. Most of these people are poor and must rely on cash to manage their day-to-day finances and plan for the future. Even as countries aggressively expand their banking infrastructure, poor households often still choose to save informally and many formal accounts remain dormant, preventing their potential welfare benefits from being realized,” the study noted. “Electronic payment and savings systems, which reduce the cost and increase the convenience of formal financial services, are one tool with the potential to boost financial inclusion and encourage formal savings in poor households.”
Three-thousand workers across four garment factories in Dhaka, Bangladesh will be randomly assigned to either continue collecting their wages in cash, receive them as a mobile money payment, or as a direct deposit payment into a “no-frills” bank account.
According to IPA, few of the factory workers on the production line have bank or mobile money accounts and use of high cost moneylenders is common. While workers are currently paid in cash, many use mobile money platforms to transfer earnings to family members in home villages. Some even use vendors’ or other individuals’ accounts to conduct the transactions, and pay high transaction fees to do so.
As part of the study, the bank will install an ATM at each factory and train workers on how to use the accounts. One of Bangladesh’s mobile money providers will also offer onsite aid.
Researchers will survey the participants prior to issuing the accounts and then monthly for the next nine months, followed by a final assessment. The data is expected to allow researchers to assess how workers’ borrowing, saving, spending and remittance patterns change as a result of the electronic payments. Researchers will also examine administrative data from the factories following the study to measure attendance, job performance and the profitability of switching from cash to electronic payroll.