The Ready-Made Garments (RMG) sector employs 3.5 million people in Bangladesh. About 90% of RMG workers’ salaries are paid in cash. RMG workers, despite their numbers, generally remain outside the purview of formal financial services. The “Sarathi” project, implemented by Swisscontact, helps facilitate financial services for this segment by working with partner commercial banks and RMG factories.
When Sarathi started in the beginning of 2018, many were sceptical regarding its targets. After all, opening 60,000 bank accounts in two years for a segment of the demography that had very little experience with any form of formal financial institutions seemed daunting.
Previously, RMG workers would receive their salaries in cash, and this posed a myriad of risks, which included having to carry a large sum of cash through unsafe streets and having no formal method of saving amongst many others.
Theoretically, disbursing salaries through mobile financial services (MFS) would have been an easier transition for both RMG factories and their workers, as most RMG workers have some form of mobile phone. However, having a bank account gives RMG workers access to a more robust financial ecosystem, which allows them to save while receiving interest, take loans, use their debit cards to make payments, avail a large variety of banking products, amongst many other benefits. This is unmatched by any other formal financial institution.
Therefore, Sarathi chose to approach wage digitization in the RMG sector using formal bank accounts. This plan presented challenges on both the demand and supply side. RMG factories and workers were sceptical regarding wage digitization as this would mean a completely new payroll system would have to be adopted by both factory management and workers. RMG workers’ lack of experience with commercial banks also made RMG factory management question whether this transition would be one that was readily accepted or not.
On the other side, most commercial banks did not see RMG workers as a commercially viable customer base. There was not enough evidence that showcased the savings and account usage behaviour of RMG workers, and therefore deploying the necessary resources to acquire this segment was unlikely to yield profits in the opinion of the commercial banks.
Sarathi helped to ease this gap by cost-sharing with the commercial banks to help reduce the risk and to ensure that RMG worker account acquisition was more affordable. At the same time, Sarathi also helped develop business models for the commercial banks, which mapped-out the service delivery mechanisms, cost and revenue structures, break-even analysis and, cost and revenue analysis, in order to find a model which would be profitable when digitizing the payroll system of RMG factories and for serving RMG workers.
Sarathi also developed the financial literacy training (FLT) modules, which helps RMG workers learn about the commercial bank’s products and services, so they can easily adapt to using a bank account and integrate into the digitized wage payroll system much more easily.
Now, almost two years later, Sarathi has achieved its target of opening 60,000 bank accounts for RMG workers.
On 7 May 2020, Sarathi completed its account opening target amidst the ever-evolving COVID-19 situation in Bangladesh.
"I really wish I had known about how secure a bank is for saving your money earlier, but I am glad I can at least sleep a little more peacefully now, knowing that no one will be able to take my savings away.”
When talking about her experience with using a bank account, Shiuly Akhter, an operator at Ananta Jeanswear Ltd., had this to say:
“I had no idea about using a bank account before. I have been working at Ananta since 2011, and I would always save my money at home.”
“However, I don’t live in a good neighbourhood, and our house has been burgled multiple times, with all our savings being lost.”
“Our dream was to purchase a plot of land back in our village, and somehow me and my husband had finally managed to save BDT 80,000 (USD 940) to make our first down-payment. Unfortunately, while my husband was waiting at the train station to take the money back to the village, he was mugged. Treating him at the hospital also cost us an extra BDT 20,000 (USD 235). It was one of the worst moments of my life.”
Soon after, The City Bank Ltd. started opening bank accounts for the RMG workers at Ananta Jeanswear Ltd. This is when Akhter had her first ever experience with the bank. Since then, she has been keeping all her primary savings in her bank account.
“I no longer have to worry about losing my money even if someone breaks into our house. I don’t have to carry a large sum of cash on the train and can instead pick it up at the branch of the bank back in my village. I really wish I had known about how secure a bank is for saving your money earlier, but I am glad I can at least sleep a little more peacefully now, knowing that no one will be able to take my savings away.”
Generally, RMG workers with bank accounts have a higher propensity to save than those without. Sarathi’s field experience shows that when workers are given the knowledge for better financial management and planning, which is provided through the FLTs, RMG workers tend to save more. Some RMG workers even choose to avail services such as Deposit Premium Scheme (DPS), which gives them a greater future return in exchange for small payments in the present. Additionally, they also receive interest on any savings made in their primary bank accounts.
There is a high level of uncertainty regarding the current pandemic and when it will end. The RMG sector is a pivotal part of Bangladesh’s economy, not only for its contribution to the GDP, but also because of the large number of workers it employs. Having the facility of a digital payroll system allows for these RMG factories to disburse wages while also maintaining the current social distancing protocol.
At the same time, workers who saved small amounts every month in their salary accounts and opened DPS accounts have some form of savings that they can temporarily fall back upon.
RMG factories that have had to temporarily shut down their operations can still pay their workers the wages that are due, as they no longer have to physically disburse the wages in cash.
In order to better prepare for such a crisis, should one arise again, switching to as much of the systems within which industries operate, to a more digital side is essential. The present pandemic has showcased to us why there is a need for more programmes like Sarathi in the RMG and any other similar sectors, with low-income earners to provide some level of stability even amidst a dire situation.
Sarathi - Progress through Financial Inclusion - is founded by Metlife Foundation.