SouthAsia Enterprise Development Facility Managed by IFC, in partnership with DFID and Norad & Bangladesh Investment Climate Fund Study on Deposit Mobilization for Readymade Garments Workers in Bangladesh Managed by IFC, in partnership with DFID and EU Study on Deposit Mobilization for Readymade Garments Workers in Bangladesh IFC Advisory Services in South Asia SouthAsia Enterprise Development Facility Managed by IFC, in partnership with DFID and Norad & Bangladesh Investment Climate Fund Managed by IFC, in partnership with DFID and EU Study on Deposit Mobilization for Readymade Garments Workers in Bangladesh June 2012 Report Prepared by Shorebank International United House, 10 Gulshan Avenue Gulshan-1, Dhaka-1212, Bangladesh Phone: +880 2 88337-52 up to 66 Fax: +880 2 8833495 www.ifc.org/southasia Design & Print : Tradex BD About IFC Foreword IFC, a member of the World Bank Group, is the largest global development institution focused exclusively on the private sector. We help developing countries achieve sustainable growth by Towards Financial Inclusion. financing investment, providing advisory services to businesses and governments, and mobilizing capital in the international financial markets. In fiscal 2011, amid economic Readymade Garments is a $16 billion dollar industry in Bangladesh. It is the second biggest uncertainty across the globe, we helped our clients create jobs, strengthen environmental employer in the country, employing about three million people of which 85% are female, and performance, and contribute to their local communities—all while driving our investments to contributing significantly to social inclusion. However, the extent of transformation is yet to be an all-time high of nearly $19 billion. For more information, visit www.ifc.org. fully realized, as 86% of the workers in the garment factories do not have access to suitable financial services, according to our Readymade Garment Workers Deposit Mobilization study. About SEDF This constraint precludes leveraging banking services and workers are limited to traditional and informal financial sources. SouthAsia Enterprise Development Facility aims to create opportunities and improve lives. SEDF is managed by IFC, in partnership with the UK Department for International Gaps in education and awareness are at the heart of the problem. And, if banks were fully Development and the Norwegian Agency for Development Cooperation. SEDF facilitates the aware of the profitable space that readymade garment workers and small entrepreneurs can growth of small and medium enterprises by helping improve their access to finance through a provide, more financial products targeting this segment of the market would be offered. supportive financial infrastructure, financial products development and strengthening of Garment workers, too, need to be educated on new and existing banking products and ways to financial institutions; providing quality business services towards strengthening value chains; access them, which in turn, would make them less risk averse. and helps businesses adapt to the impacts of climate change. SEDF operates in Bangladesh, Bhutan, northeast India and Nepal. IFC’s objective of making financial services accessible and affordable for the excluded, together with the strong demand from the financial sector to better understand this untapped market, led to this market study. Jointly commissioned by SEDF, managed by IFC, in About BICF partnership with DFID and Norad, and BICF, managed by IFC, in partnership with DFID and EU, the study explores key trends, challenges and opportunities that exist in banking services The Bangladesh Investment Climate Fund provides advisory services aimed at improving aimed at readymade garment workers. Financial awareness is part of IFC's larger responsible business operating environment in Bangladesh. BICF is managed by IFC, in partnership with finance initiative both in South Asia and globally. the UK Department for International Development and the European Union. Its objectives are consistent with the Bangladesh government’s strategic vision for private sector The study finds important potential for bankers, for bringing readymade garment workers into development within its poverty reduction strategy. Government agencies and BICF—in close the formal financial sector. Interestingly, some key findings in the study shows that 14% of collaboration with the key stakeholders in Bangladesh—jointly design and implement programs readymade garment workers have bank accounts and only 19% of the workers have a savings to institute business friendly policies, laws and regulations, and strengthen the institutions that account, although 82% believe that they need it. This represents an “opportunity gap” of 63%. implement them. The market is there and the products are there. There is a need to match demand with supply Disclaimer as well as financial awareness and education for theses garment workers. The judgments and conclusions contained herein should not be attributed to, and do not We trust this contribution will add value to the efforts of those committed to making necessarily reflect the views of IFC or its Board of Directors or the World Bank or its affordable financing available for millions of garment workers who work hard to keep Executive Directors, or the countries they represent. The material in this market study is set out Bangladesh among the top garment exporters. in good faith for general guidance, but IFC and the World Bank do not guarantee the accuracy of the data and accept no responsibility for any consequence of its use. Kyle F. Kelhofer Anil Sinha The material in this work is protected by copyright. Copying and/or transmitting portions or Country Manager, Bangladesh, Bhutan and Nepal Regional Head of Advisory Services, South Asia all of this work may be a violation of applicable law. IFC encourages dissemination of this International Finance Corporation International Finance Corporation publication and hereby grants permission to the user of this work to copy portions of it for the user’s personal, noncommercial use, without any right to resell, redistribute, or create derivative works herefrom. Any other copying or use of this work requires the express written permission of IFC. Content 1 Executive Summary 2 Key Findings – Workers, Management 1 Executive Summary Introduction and Context 2 3 Desk Research Summary of Findings Conclusions and Recommendations 4 6 4 Conclusions and Recommendations Study Design 12 5 Appendices 2 Key Findings – Workers, Management Workers – Education and General Profile 16 Workers – Use of Banking Services 18 Workers – Safekeeping and Savings 20 Workers – Borrowing and Money Transfer 24 Workers – Financial Services Needs 26 Management 30 3 Desk Research Local Initiatives 34 International Initiatives 38 4 Conclusions and Recommendations Conclusions 44 Recommendations - Products 48 Recommendations – Delivery Channels 49 Recommendations – Financial Literacy Training 50 Recommendations – Replicating Learnings from Successful Models 51 5 Appendices Bibliography 52 Study on Deposit Mobilization for Readymade Garments Workers in Bangladesh Study on Deposit Mobilization for Readymade Garments Workers in Bangladesh 2 Introduction and Context Introduction and Context 3 At the G-20 Seoul Summit in November 2010, the leaders of the 20 member countries • To identify the financial services currently being used by RMG workers and to identify areas endorsed the “Financial Inclusion Action Plan” and the creation of the “Global Partnership for of unmet demand. Financial Inclusion (GPFI) proposed by the Financial Expert Group.” The resulting • To outline their deposit, spending and savings habits and define product needs. declaration provides the following rationale for creation of the group: “To promote resilience, • To identify current levels of familiarity with the formal financial services and understanding job creation and mitigate risks for development, we will prioritize action under the Seoul of personal financial management including budgeting. Consensus on addressing critical bottlenecks including infrastructure deficits, food market volatility, and exclusion from financial services.” The survey was extensive, covering 724 workers (80% female, 20% male) from a wide range of different pay grades and factories together with separate in-depth focus group discussions. This For a developing country like Bangladesh, the readymade garments (RMG) sector is the was combined with factory management interviews and a desk study of products and channels country's primary foreign exchange revenue generator. It accounted for about 87% of the total specifically targeting the low income market implemented both in Bangladesh and elsewhere in share of exports and earned $16.2 billion in 2009-10. In addition to the substantial contribution the world. to the economic arena, the social contribution of the garments sector has also been significant. The work stream encompasses three areas: It has provided employment to about three million workers, with 85% being young, poor and semi-literate women. The sector is growing at 16% annually, but workers cannot leverage this 1. Research and data; effectively, as they lack access to suitable financial services and face security risks due to 2. Recommendations; and, receiving wages in cash. 3. Identification of banking models geared to the needs of RMG worker The recent developments in banking technology have transformed banking from the traditional Rationale brick-and-mortar infrastructure of staffed branches to a system supplemented by other channels like automated teller machines (ATM), credit/debit cards, internet banking, online The rationale for conducting this study is that while in Bangladesh there are about 3 million money transfers, etc. Access to such technology, however, is still restricted only to certain employees in the RMG sector, however only a fraction of these employees use any banking segments of the society. For the financially excluded such as RMG workers, small services. A number of factors have been investigated as contributing to the slow growth, entrepreneurs, etc., opening and maintaining bank accounts, especially in a country like including institutional issues, lack of awareness on banking services offering, risk aversion, lack Bangladesh, can be complex and time-consuming due to lack of awareness, accessibility and of targeted product offering, accessibility of banking services at convenient times of workers, availability of targeted products. etc. As access to finance is repeatedly identified as a major constraint to encouraging economic growth, this report sets out to analyze the issues involved in improving access to finance for As part of its agenda to promote financial inclusion in Bangladesh, IFC is focused on providing RMG employees. access to finance to underserved segments through building the financial sector’s awareness. As a part of its commitment to provide technical assistance to its partner financial institutions It also aims to identify scalable financing models that can be replicated looking to increase the (PFIs), Shorebank International (SBI) was engaged by IFC to conduct scoping of the market, opportunities of RMG employees. collect and compile the relevant information to identify the needs of RMG factory workers, and opportunities available for financial institutions (FIs) in designing value added depository and Scope lending products. The primary objective of the research was: This report highlights key trends, challenges, and opportunities for banking services for RMG workers and increasing their access to finance. Due to their high growth potential of the sector, RMG employees are of particular interest. The report therefore identifies constraints and opportunities for scalable approaches to increase access to finance for RMG employees; pinpoint specific knowledge gaps for which further training is recommended; and, provide recommendations on expanding access to finance for RMG employees. Study on Deposit Mobilization for Readymade Garments Workers in Bangladesh Study on Deposit Mobilization for Readymade Garments Workers in Bangladesh 4 Summary of Findings Summary of Findings 5 The survey identified minimal differences in overall financial behavior between those at the highest pay grade (earning over Tk.9300, or around US$122 per month) and those at the lowest grade (earning around Tk. 2300, or around $33 per month). 50% of those interviewed fell into the Tk.3763-7199 (US$49-95) pay bracket. Based on these findings, a typical RMG worker profile can be seen below. • almost exclusively paid in cash • does not receive a pay slip • has a 30-45 minute break for lunch, and no other breaks • does not have bank accounts • keeps their salary at home or on their person • uses predominantly informal channels for savings, borrowing and sending money home • generally has control over their own money, although rely often on family advice • occasionally overspends, and will borrow from friends or family • sometimes has money left at the end of the month, and will buy something special or save it • undertakes some income/expense planning, but would like to know more • would like to save for short and long term aims • takes loans more for general consumption and unplanned expense than future-building RMG factories currently spend around 5.92 person hours per 100 workers undertaking calculations (around 3.5 minutes per worker). A further 2.98 person hours per 100 workers is spent disbursing payroll (around 1.8 minutes per worker) – this typically takes 1-2 days for the • The demand/usage gap for savings products is the most significant - around 2:1 - with a whole factory, but at some factories this can equate to 3-4 days. Additional anecdotal evidence significant percentage of workers (40%) wishing to be able to deposit and withdraw through shows that in some cases workers wait in line to receive salary, where in other cases their an agent at work. salaries are taken to their workstation. • 46.3% of the garments workers only use those services that they are familiar with – friends and family are the most often-used channel for money transfers and short-term borrowing. The majority of factory payroll systems (90.3%) are only partially computerized. Around half • 38.4% of the garments workers are always looking for the most convenient way to do things would be willing to try a third party service, stating improvements in efficiency as the main but are a bit scared of technology. perceived benefit, with the main concerns being cost and the need to retrain staff. • 66% of the workers would like to learn what different types of insurance are. • 72.5% of the workers would like to learn about different types of banking services and Around half of the factories interviewed said they would have no problem with trying a new compare them. For further details please refer to pg 27. method of salary payment and quoted perceived worker resistance as the reason for not • 86.9% of the workers learn about their options for financial services by word of mouth proceeding. Most workers would not wish to try out a new system, prefer being paid in cash, through friends & relatives. 75.1% of the workers learn through media. do not have a bank account etc. Delay in salary disbursement generally leads to worker unrest. Please refer to pg 18 & 32 for details. Study on Deposit Mobilization for Readymade Garments Workers in Bangladesh Study on Deposit Mobilization for Readymade Garments Workers in Bangladesh 6 Conclusions and Recommendations Conclusions and Recommendations 7 It can be seen that there is a significant opportunity to provide a range of financial services to By contrast, branchless banking leverages existing infrastructure (agent shops) and equipment. RMG workers – a “shopping basket” of competitively-priced, easily-accessible products that Recent CGAP research service has shown that branchless banking is 19% cheaper compared enable them to save for short and long term objectives, and manage their money more to traditional banking. Please refer to pg 33 – 42 for more details. effectively. Improving the efficiency of factories in calculating and disbursing salaries also has the potential to improve the speed with which workers get paid, and their trust in receiving the salary they expect for the hours they have worked. There are, however, three key challenges to overcome: • Low-value products are extremely expensive to deploy and maintain through traditional banking channels (and as a result, commercial banks do not find it financially viable) • RMG workers are extremely price-sensitive and have no access to financial institutions during normal opening hours • Encouraging the adoption of formal financial services is likely to require incentives combined with education on the security, convenience, low cost and benefits of planning for the future, and how products and services offered can help to achieve this. In order to validate and seek inputs from some of the key stakeholders, i.e the banks, a validation workshop was held to assess some of the key findings. At the session, three potential scenarios were considered and presented to IFC and partner banks. These are covered in detail in the “Conclusions” section of this report, together with pros and cons of each. This assessment, together with the data on financial services addressing the RMG and low-income markets in other countries, has overwhelmingly identified the branchless (agent) and mobile delivery channels – collectively referred to as Alternative Delivery Channels (ADC) – as being the most effective way to increase outreach. To date, Bangladesh financial institutions have offered very limited services to the RMG worker and low income markets. Only one bank (Social Islami) has offered commitment Bank branches require considerable investment in infrastructure, equipment, human resources, savings accounts to this specific market segment – but these are still only available through and security. Setting up and maintaining ATM machines are expensive. branches. Preliminary research shows that approximately 50,000 workers are using this. Two ADC initiatives have recently been started targeting the low income population in general: • Dutch Bangla Bank has launched an agent-based banking service, enabling deposit, withdrawal and money transfer services through a network of 1100 agents. • Mobile financial services provider bKash has launched a mobile wallet that is capable of working with multiple banks. In addition to agent-based deposit and withdrawal services through a network of 3000 agents, customers can send money to each other from their mobile phone. Internationally, there have been a number of successful ADC deployments (with details on page 29): MPesa in Kenya now has over 15m clients and is internationally known. A number of agent banking services have been launched in South America and India such as Lemon Bank, Geosansar etc. Geosansar is being supported by the RMG industry. Study on Deposit Mobilization for Readymade Garments Workers in Bangladesh Study on Deposit Mobilization for Readymade Garments Workers in Bangladesh 8 Conclusions and Recommendations Conclusions and Recommendations 9 It is quite viable for any commercial bank in Bangladesh wishing to increase its outreach to One of the key challenges has been seen to be the amount of time it takes to physically disburse either link in with one of the established platforms, or create its own. salaries – being paid on time, and not having to wait in line, represented over 50% of the main reasons for workers wanting to change the present systems. Enabling a mobile wallet solution Retail banks, although recognizing the potential of this approach, also have reservations about as a mandatory means of salary payment is unlikely to remove this “rush” in the short term – the management aspects of enabling large volumes of small accounts on their CBS – which are workers will still want to cash out immediately until they become more confident in storing also typically not configured to readily integrate to ADC. Based on evaluation of all of the money in their wallet and withdrawing it on demand. various factors involved, the key recommendations on the way forward can be summarized as follows: • Design a range of savings and credit products, tailored to the RMG workers’ needs, which will primarily be delivered through ADC. Workers will access their accounts through a network of agents and/or their mobile phone – there will be no need for branch access or ATM/debit card linkages. These products can be deployed on a separate software platform, designed for this purpose. There are many high-quality microfinance institutions (MFIs) solutions globally available that would be well suited to this task. Integrate this platform with a mobile wallet solution that is designed to enable high volumes of “virtual current accounts” combined with cash-in, cash-out and money transfer services through an agent network. The mobile wallet will enable interaction (transfer in, transfer out, enquiry) with the savings and credit products described above for those who want it. • Once the potential program offerings have been shortlisted, the key next step would be to Given this scenario, in order to develop a more cost/time effective system, some of the hold a series of consultative sessions with the RMG workers and manufactures to explain potential suggestions are as follows: product and its intended benefits. • Work with the factory to enable a staggered system of salary payments that divide • Deliver a series of training modules (backed up by infomercials displayed on TVs disbursements equally throughout the week in which they normally make payment. throughout the factory) explaining the planned product offerings and the benefits to the • Ensure the factory has sufficient “agents” on pay day to effectively ensure fast cash-out. workers. Ensure that all communications effectively address the key worker concerns: • Phase introduction of new payment methods i.e. 50% still in cash followed by a gradual especially the ability to access money when and where they need to. Install a “help desk” in reduction as workers get used to new financial behaviour. the factory to answer worker questions and concerns, and ensure they are all adequately addressed and fed back to the factory population prior to launching any service. The training component will be an integral part of the program. • Establish an agent point inside the factory, so that workers who wish to deposit and withdraw cash can do so on demand. Ensure this agent point is well-informed about the range of savings products available, and can assist the worker in setting one up on demand. • Either establish a network of agent points in the areas where the workers live and work (to enable access outside of working hours), or work with an established mobile wallet provider who already has such a network established. The bank can set up and train its own agents or outsource the responsibility to other companies. Study on Deposit Mobilization for Readymade Garments Workers in Bangladesh Study on Deposit Mobilization for Readymade Garments Workers in Bangladesh 10 Conclusions and Recommendations Conclusions and Recommendations 11 • Enable frequent and repeated “lunchtime interactive sessions” with workers over a number of months leading up to the implementation. These sessions should be conducted through bank employees, trained and knowledgeable factory workers or the providers of the service. Such sessions will aim to capture questions that workers may have and provide them with solutions to their concerns. It will also ensure that concern over access to salary is overcome (including reassurance that on-demand withdrawals are readily available in a wide range of locations near the workers’ homes), thereby encouraging as-needed withdrawals rather than a big rush on payday. This could take the form of the following:  Initial televised “infomercials” shown at lunchtimes explaining what the factory is planning to do, and reassuring them that there will be full consultation before any steps are taken  Training of selected workers who will in turn act as focal points for listening to workers’ concerns and questions and ensuring they are answered satisfactorily  Provision of “question boxes” where workers can anonymously deposit questions, and the posting of all answers on a central noticeboard  “Test beds” where workers can experiment with the technology and ensure they are comfortable with it In summary, although there is significant potential to bring RMG workers into the formal financial sector, lack of careful planning (and careful pricing) will result in little or no uptake. It is recommended that the next steps would be: • Design a suite of financial products (Detailed in the “recommendations” section at the end of this report) that may have appeal to the target market. • Concept Test the proposed products with a number of focus groups. This is similar to the qualitative research process, but involves presenting participants with a planned product and obtaining their impartial feedback on its suitability and pricing. • Depending on feedback, modify the design and retest the concept. • Research the various options for delivery channels, understand purchase, deployment and transaction-based pricing, and build a detail business model and strategy for a partner commercial bank. • Engage with three partner RMG factories to discuss a planned pilot, ensuring concerns (both theirs and those of their workers) are addressed and built into the plan. • Finalize systems and ecosystems design; procure and integrate the relevant solutions. Study on Deposit Mobilization for Readymade Garments Workers in Bangladesh Study on Deposit Mobilization for Readymade Garments Workers in Bangladesh 12 Study Design Study Design 13 Sample Selection and Research Methodology RMG workers were selected at random at end-of-shift within the designated areas, whilst adhering to the split of female/male and different grades of workers that are representative of the workforce. Factories were chosen from the list of factories that the interviewed workers were employed by, using the Purposive Sampling method in order to ensure an even mix of factories in terms of type (knitwear, woven and sweater) and also to ensure that some of them were located inside the Export Processing Zone. Only employees responsible for salary disbursement were selected for interview. Data Gathered The following broad information areas were covered in the quantitative worker segment: Occupation Designation, grade, monthly salary, duration of employment, break time Cashflow Method of payment, preference for using current method, interest in using direct deposit, desired improvement in method of payment, safekeeping habits, preference of using alternative safekeeping instruments Budgeting and Monthly expenses of various items (rent, food etc), planning financial management finances, usage of money saved from previous month’s salary, management of cash when salary runs out before month end Savings habits Frequency, where, how much, interest earned, reasons for saving, FI/banks used, reasons limiting ability to save, desired features of a savings account, willingness to participate in a commitment savings program, features of such a commitment savings program Use of banking services Knowledge of banks near home/workplace and ATM available, distance to nearest bank, banks used, convenience of operating hours, reasons for maintaining/not maintaining a bank account Use of credit services Current/past loan status, institutions borrowed from, purpose of loan Use of other financial Reasons for sending money to family/friends, current life products insurance status Summary of financial Ranking of services used & needed most, interest in learning on services used and needed topics related to finance Study on Deposit Mobilization for Readymade Garments Workers in Bangladesh Study on Deposit Mobilization for Readymade Garments Workers in Bangladesh 14 Study Design Study Design 15 In additional to quantitative studies, in-depth qualitative surveys were undertaken with a Respondent Breakdown number of groups. The attendees represented the typical profile of the RMG population being a mixture of males and females and within the 18-35 age group. Overall No of Field Interviews 724 These sessions took roughly 90 minutes, and were focused on learning more about the No of Management Interview 31 following areas: No of FGDs 6 No of Factories 278 Lifestyle & behavior Daily activities, hobbies, shopping habit, food habit Media habits TV, radio, newspaper, internet, cinemas, advertisement Field Survey Respondent Distribution by Garment Type & Location Employment & financial Occupation details, income, method of payment, Knitwear Woven Sweater Total info expenses, safekeeping and savings habits, remitting Inside EPZ 41 43 25 109 money to friends & family Others 282 275 28 615 Financial institution Knowledge of banks near home/workplace and ATM Total 323 318 83 724 available, banks used, convenience of operating hours, reasons for maintaining/not maintaining a bank account Field Survey Respondent Distribution by Gender No of Respondents % Male 147 20 Female 577 80 Total 724 100 Management Survey by Garment Type & Size Knitwear Woven Sweater Total Large 4 4 0 8 Medium 2 1 1 4 Small 6 8 5 19 Total 12 13 6 31* *All management survey respondents were male Focus Group Discussions FGD Serial No of Participants Age Gender Factory Type 1 6 18 – 35 yrs Male Sweater 2 6 18 – 35 yrs Female Sweater 3 6 18 – 35 yrs Male Knitwear 4 6 18 – 35 yrs Female Knitwear 5 6 18 – 35 yrs Male Woven 6 6 18 – 35 yrs Female Woven Study on Deposit Mobilization for Readymade Garments Workers in Bangladesh Study on Deposit Mobilization for Readymade Garments Workers in Bangladesh 16 Education and General Profile Education and General Profile 17 Education General Profile Almost one fifth of the workers are uneducated and almost 70% of the workers have studied only up to grade 10. Pay Grade and Income Most of the workers belong to Grade 3 – 5 earning Tk 3455 – 7199. Majority respondents have been in Little education is required. the business for 8 months to 2 Could not find any other job. years. The rest are working for 3 to Pay Grade Level 12 years. Good industry to work in when one becomes a skilled worker. Expected worklife in the industry is 2% 2% 3% Grade 1 - Above 9300 Tk 4-6 years Some relatives & friends work there. Grade 2 - 7200 - 9299 Tk 7% Grade 3 - 4120 - 7199 Tk 17% Grade 4 - 3763 - 4119 Tk 27% Grade 5 - 3455 - 3762 Tk 4% Grade 6 - 3210 - 3454 Tk Grade 7 - 3000 - 3209 Tk Duration of Reason behind 11% employment in this working Apprentice - 2500 - 2999 Tk 26% industry in this industry Below - 2500 Tk Other industries they have worked Level of Education in 1.93% 0.14% 7.87% Uneducated/Only Sign/No Schooling Most of the respondents didn’t work in any other industry    School upto class-7 earlier. 20.17%    School upto class-8 to 10 Some respondents changed their workplace but not the industry. 29.28%    SSC/ Dakhil 40.61%    HSC/ Alim    Graduate (general) / Fazil Study on Deposit Mobilization for Readymade Garments Workers in Bangladesh Study on Deposit Mobilization for Readymade Garments Workers in Bangladesh 18 Use of Banking Services Use of Banking Services 19 Access and Challenges of Using Banking Services General Profile Only 38.1% of the workers knew whether there is a bank close to their home or workplace, and Most workers are unaware of the how banks operate and hence feel that opening an account fewer still know whether that bank has an ATM. Majority of the banks are located within 1km must be a complicated process. Banking hours are also inconvenient for workers as they cannot from their workplace/home. Cost of travelling on average ranges between Tk. 10-50. The get out of their work place during bank opening hours. It should be noted that the process for stakeholder sessions revealed that the fact that few workers knew whether there is a nearby opening a bank account could be a potential training topic - however, it must first be ensured bank or not means that banks don’t feature in their lives – since most banks aren’t open outside that services are easily accessible to workers, convenient and low cost. of factory working hours, and findings below explain why workers generally don’t have accounts. Reasons for Not Opening Bank Account Roughly 14% respondents have bank accounts. Islami Bank, Dutch Bangla Bank & Sonali Bank are the most widely used. Significant gender differences seem to exist in preference for institutions. Women prefer Islami bank, Sonali Bank & Grameen Bank. Men prefer Dutch 10% Unsure about services provided Bangla Bank, Islami Bank & Agroni Bank. Process will be too complicated 37% 64% Uncomfortable going into a bank Widely Used Banks 13% Will be too expensive 120% 10% No banks nearby 100% Specialized Development Bank 12% Bank fees are too high 80% 60% Private Banks 15% 50% Not easy to access money 40% 20% Banking hours are inconvenient 20% State Owned Bank Dosn't have enough money to deposit 0% Overall Male Female Those who have opened a bank account have mainly done so in order to have a safe place to keep their money and to be able to meet long term objectives (retirement, education for children/family members etc). Purpose for Opening a Bank Account Security reasons 41% Gain access to other financial 88% services (Cheques, paying bills etc.) Earn interest on saving 48% Save for a specific purchase For predicted future needs 32% (education, retirement, etc.) 13% 11% For emergency needs (death, accident) Study on Deposit Mobilization for Readymade Garments Workers in Bangladesh Study on Deposit Mobilization for Readymade Garments Workers in Bangladesh 20 Safekeeping and Savings Safekeeping and Savings 21 Workers who open a bank account usually do it upon receiving advice from friends & family. Saving RMG workers generally keep their money at home. It can be seen that at the higher pay grades the percentage maintaining bank accounts is higher, but still extremely low in percentage terms. Opening Bank Account After Receiving Safety of carrying money around after receiving a cash salary is not considered as a significant Encouragement From problem. Safekeeping Instrument 5% 100% Bank staff 80% 33% Friends/co-workers/family 60% 40% Employer 20% 60% 2% Self 0% Grade 1 Grade 2 Grade 3 Grade 4 Grade 5 Grade 6 Grade 7 Apprentice    In my wallet    At home    In a bank account Others Their main source of information on financial institutions and services provided is gained 22% of the respondents would be interested in an alternative safekeeping instrument if it through word of mouth and media. provides them the option to save their money. Men want more access to ATMs and to be able to check balances and do transactions through a mobile phone. They would also like the option to deposit and withdraw through an agent at work. Women want the ability to save and to send money to friends & family. Source of Information on FIs Desired Features of an Alternative Safekeeping Instrument 8% 11% Word of mouth 90% 76% (friends/relatives) 70% 60% Media (TV, newspaper, 42% 87% 40% 35% 33% billboards) 30% 26% 16% 21% 19% 10% 9% 6% 75% 4% Through visits from 0% representatives of FIs Deposit and Deposit and Check Ability to Ability to ATM access Pay for things withdraw withdraw balance and save send money at shops Self inquries to locate needed through an through a do to friends, services agent at local store transactions family work using mobile phone Male Female Study on Deposit Mobilization for Readymade Garments Workers in Bangladesh Study on Deposit Mobilization for Readymade Garments Workers in Bangladesh 22 Safekeeping and Savings Safekeeping and Savings 23 Saving Data from the FGDs suggest that workers prefer government banks to private banks because: State Owned Banks Private Banks Only 25 % of the respondents save. The majority state a lack of ability to save due to a lack of money, knowledge of how to save and lack of ability to control spending/discipline. More secure than private bank  no fear of Risky investment  can close their losing money as they are controlled by operation at any time. government Saving is equally prevalent amongst men and women, but is higher amongst the higher salary Government is the guarantor of the money Provide better profi t and services but scales than the lower. Savings are overwhelmingly monthly, with an amount of between not dependable 500-1000 a month. Branches are not available all over the Trustworthy and dependable longer presence country Percentage of Workers Saving Branches are available throughout the country Apprentice 15% Earning interest is not a primary reason for respondents to choose their mode of saving. Grade 7 18% Respondents focus on security followed by trustworthiness when selecting the mode of saving Grade 6 27% money. Grade 5 19% Reason for Choosing Respective Mode of Saving Money Grade 4 24% 100% Grade 3 27% Grade 2 41% 80% Grade 1 58% 50% 60% 0% 20% 40% 60% 80% 100% 40% 17% 14% 80% of the respondents would be interested to participate in a commitment savings program if 20% 9% 3% it is safe and trustworthy. 0%    Secure    Trustworthy    Ease of access    Can withdraw    High interest Across all pay grades, except at the lowest income level, the most common place to save is a anytime rate bank, with men more likely than women to use this method. Women save more through cooperative societies and insurance programs. Workers in lower pay grades tend to save in Over 80% of those surveyed didn’t know what rate of interest they were currently getting. NGOs more. Interest Earned Bank Community Savings Group Base 87 33 Institutions Used for Saving 3 1.2% 0.0% Apprentice 5 6.9% 0.0%    Islami Bank 8 3.5% 3.0% Grade 6    State owned Banks 8.5 4.6% 0.0% Grade 4 10 0.0% 9.1%    Private Bank Grade 2 12 1.2% 0.0%    Cooperative Society Female 20* 0.0% 3.0%    Insurance 40* 0.0% 3.0% Overall NGO & Other 65* 2.3% 0.0% 0% 20% 40% 60% 80% 100% 120% Don't know 80.5% 81.8% Study on Deposit Mobilization for Readymade Garments Workers in Bangladesh Study on Deposit Mobilization for Readymade Garments Workers in Bangladesh 24 Borrowing and Money Transfer Borrowing and Money Transfer 25 The main two reasons for saving were identified as "for future needs or emergencies" When they are left with cash they usually buy something special or save it for emergencies. (short-term on-demand savings) and "for a better lifestyle in future" (long-term). Utilizing Extra Cash Purpose of Saving 100% 3% For future needs (emergencies, ceremonies) 80% 70% 1% 2% 2% For better lifestyle in 63% 58% future 60% 53% For buying land/house 40% For buying a vehicle 52% 41% (motorbike) 18% For starting a business 20% 12% 10% 8% For the education of the 0% children Buy something Keep it for Finding ways to Pay off debts special for emergencies make that money self/family/friends grow Borrowing Male Female 54% of the workers surveyed run out of money before the end of the month “often” or “sometimes” and tend to turn to friends or family members for support. It is seen that workers Only 8% of the workers surveyed had loans from a “formal” institution, and the prevalence of at higher pay grades are left with cash at the end of the month and workers in lower pay grades borrowing was slanted more towards the higher salary scales. run out of cash before getting next month’s pay. Loan Currently Taken From Source of Short Term Credit 2% FI, Bank 100% 2% 9% 8%    NGO-MFI 84% 80% 76% 75%    Employer 63%    Pawn shop 60% 23%    Money lender 40% 45%    Friends relatives    On credit from shop 20% 14% 8% 4% 2% 6% 2% 7%    Local Cooperative 4% 1%    Landlord 0% 4% 4% Borrow from Borrow from Money Loan from an Sell Withdraw family friends or lender MFI or bank possessions personal neighbours savings However, more than half of the borrowers gave their reason for borrowing as “consumption” and “unforeseen expenses” – indicating poor budgeting and/or failing to keep money for a Male Female rainy day even at higher income levels. Study on Deposit Mobilization for Readymade Garments Workers in Bangladesh Study on Deposit Mobilization for Readymade Garments Workers in Bangladesh 26 Financial Services Needs Financial Services Needs 27 Although very few workers currently have savings accounts, the demand for such products are Purpose of Loan high – the same level of importance is given to savings as to money transfer, even though Consumption money transfer is a service that a high percentage are already using. On a scale comparing the 7% 5% difference between “have already” and “would like access to” (therefore representing the Investment (building, renovation, etc) opportunity gap), the following priorities can be clearly seen: 7% 37% Unforeseen expenses 9% Party/ceremony Repay loan 26% 9% Pay school fees of family member Other Money Transfer 50% of workers send money home: the percentage is slightly higher amongst higher pay grades, but not significantly. The vast majority of these (around 90%) used personal contacts – friends, family, or trusted contacts - rather than channels such as transport companies or the Post Office. Workers paid no fees for sending money through personal contacts, and all were satisfied with their current method. Women send through family more than men. From the chart it can be seen that workers have most need for, but least access to, the following financial services Mode of Money Transfer 100% i) Savings - Only 19% of the workers are using savings services, although 82% believe that they need it. This represents an “opportunity gap” of 63%. 80% 60% ii) Insurance -58% of the workers believe that insurance is needed for everyone. However only 40% 10% has access to insurance. This represents an “opportunity gap” of 48%. 20% iii) Deposit – An opportunity gap of 40% exists regarding deposit services as well. Of the 47% 0% that think that such a service is needed, only 7% currently have access. Courier Personal Myself Friends Post Office Mobile Family Transport Service Contacts Service Service Male Female Study on Deposit Mobilization for Readymade Garments Workers in Bangladesh Study on Deposit Mobilization for Readymade Garments Workers in Bangladesh 28 Financial Services Needs Financial Services Needs 29 From the FGDs, workers mentioned the following financial requirements: Most workers think that savings is an important service needed for them and 74% of the workers want to learn more about planning income & expenses for long term savings. The lower the income level, the higher the interest to learn more about budgeting and saving.  Hassle-free loan option  one that does not Workers are seen to be more familiar with targeted savings (e.g. saving for a TV) and less about Loan Facility need too many documents and guarantors. long -term savings.  Low interest rates. Workers also do not wish to open bank accounts as they believe it is very complicated process.  ATM service  booth should be widely 73% of the workers want to learn more about the different banking services available and 24 hours banking available compare them.  Some branches should remain open on holidays also Workers also believe that insurance is an important financial service. 66% of the workers have Availability of  Availability of branches  could then open indicated their interest in learning more about the different type of insurance services available. branches and operate account from nearby branch. As per the IFC study conducted in increasing access to women owned SMEs (2011), “credit is Easy money transfer  Lower charges for sending / transfer more likely to be extended to those with stronger knowledge of business practices and financial facility money should not be more than 20 Tk. literacy. Indeed, having these skills is a predictor of how productively the credit will be used. For every 1000 taka More needs to be known about how best to tailor programs to different types of borrowers.  Higher interest rate for DPS / savings The experience of financial institutions in providing additional financial literacy and business Profitability account  will encourage them to open an management training seems to be a good model to replicate, but financial institutions should be account actively involved rather than relying on independent training organizations.” Microfinance loans are often granted to customers with no collateral who have been able to While nearly half of all respondents thought they had adequate financial literacy, there is clear demonstrate the ability to save over a given period of time, and it has been seen that indication of demand for additional financial literacy training. The study aimed to find out their encouraging the practicing of such “financial discipline” results in fewer defaults and a better need for financial literacy regarding the above topics. At least 61% workers expressed their ability to plan for the future. interest to learn more about all the topics. Study on Deposit Mobilization for Readymade Garments Workers in Bangladesh Study on Deposit Mobilization for Readymade Garments Workers in Bangladesh 30 Management Management 31 • All the respondents were male. Salary Processing, Disbursement Duration & Recordkeeping Process • All were full-time employees. • All the respondents were involved in the decision-making process of salary disbursement. Salary processing & disbursements can in some cases take factories up to 10 days. 65% of the factories process the payroll within 3 days. 90% of the factories disburse salary within 1-2 days. Personnel Involved in Accounting & Cashier Services No of Days to Process Payroll No of Days to Disburse Salary On average roughly 5 staff members are involved in providing accounting & cashier services. 40% Salaries of these staff members range between Tk 8000 – 70000. 29% 10% 30% 19% 1-2 day Avg Staff Distribution by Grade 20% 16% 16% 13% 3-4 days 10% 3% 3% 90% 0% 1.25 1 2 3 4 5 7 8 1.86 Junior Staff Mid-Level Staff Most factories do not have a fully computerized system. All accounting & cashier services personnel are capable of operating computers. Senior Staff 1.52 Record Keeping Process 10% Partially computerized Salary Disbursement system Workers are given the choice regarding their method of payment and all of them prefer being Completely paid through cash. All factories therefore pay their workers using cash. Only one factory uses computerized system direct deposit along with cash payment for salary disbursement. The payments are made to a 90% private bank. Overtime & bonus payments are usually paid along with the monthly salary. Payments are made within the first two weeks of the month. None of the management staff are unhappy with the system that is in place at the moment. 64.5% are completely satisfied with the entire process. Timing of Salary Disbursement Reasons for Satisfaction 100% 80% 32% First week 60% 55% Second week 40% 29% 68% 20% 3% 0% Things work smoothly Cost is low Can control and change the timing of payment as needed Study on Deposit Mobilization for Readymade Garments Workers in Bangladesh Study on Deposit Mobilization for Readymade Garments Workers in Bangladesh 32 Management Management 33 Alternative Payment System Why No 100% 89% 94% of the factories have not tried out any alternative salary payment method. Two factories 78% 72% 80% 67% tried out the ‘packet’ system. Through the system 60% 44% 50% 40% • Workers could receive their salary at their desk 20% • Easier to manage backend process 0% High Cost Lack of flexibility Trouble to Cost to Retrain staff to Unpredictable • Petty cash management reduced change/setup new change/setup perform new cash flow system functions The system was discontinued due to complicated accounting procedures and inconvenience. However there is interest from the factory management to try out alternative system. Banks for Direct Deposit Service Although 48% of the respondents have not considered the option of direct deposit, the major- Interested in Trying Alternative Payment Method ity believe that this system won’t work as workers prefer cash and majority workers do not have a bank account. Impression of Using Banks for Direct Deposit Service No banks nearby/open outside working hours 39% 48% Yes Workers prefer getting money in person 55% 52% Workers doubt about getting paid properly 32% No They may make too many errors 19% Payment system is not reliable 6% Workers don't have bank accounts 55% Things work fine as it is 42% Have never considered the option 48% Setting up is too complicated 26% Cost is probably too high 23% 3rd Party Payment Service Workers will not be interested 74% Banks will not be interested 3% 42% of the factories would be interested to try out an alternative 3rd party payment service if 0% 20% 40% 60% 80% 100% it increases efficiency in the process. Others, however, believe that the system may prove to be expensive and that staff will have to be retrained to manage the new system. E-Payment System Factory management would also be interested to try out alternative e-payment systems and Why Yes would be willing to pay fee to avail the service. Majority believe that workers would even be 50% willing to pay a fee for the service. 38% 40% Would Workers be Willing to 31% Would Management be Willing 30% to Pay a Fee Pay a Fee 20% 15% 15% 16% 10% 36% Yes Partial 0% No None Efficiency in Efficiency in actual Error reduction Removing cash 65% 84% accounting disbursement disbursement from factory site Study on Deposit Mobilization for Readymade Garments Workers in Bangladesh Study on Deposit Mobilization for Readymade Garments Workers in Bangladesh 34 Local Initiatives Local Initiatives 35 The desk research has been drawn from a range of reports and various websites, and is divided The scheme has proven to be very popular in Gazipur, Tangail and Savar, where many RMG between local and international initiatives. The research also looks into schemes undertaken for factories are located. RMG owners also actively encourage (in some cases insist) their workers other factory workers which could potentially be tailored to fit the needs of RMG workers as to open their accounts at SIBL under this scheme, as workers will then have access to insurance well, and a comparison between branchless banking and traditional banking. coverage. Workers under this scheme depositing a minimum of Tk. 500 per month for a 5 year tenure are covered by Progati insurance between Tk. 50,000 and 100,000. Workers who have The RMG sector in Bangladesh employs more than 3 million people earning a minimum of Tk. saved up to Tk. 50,000 through this scheme also become eligible to apply for loans at SIBL. 3000 and represents a huge source of funds for financial institutions to tap into. However the research indicates that only two banks have taken up deposit programs targeting RMG workers. Dutch Bangla Bank Mobile Banking Dutch-Bangla Bank Limited (DBBL) was established under the Bank Companies Act 1991 and Social Islami Bank Limited incorporated as a public limited company under the Companies Act 1994 in Bangladesh with the primary objective to carry on all kinds of banking business in Bangladesh. In June 1996, Social Islami Bank Ltd. (SIBL) was established in 1995 and functions DBBL started its formal operation in the banking sector. DBBL is most widely recognized for on the Shariah principle with a vision of reducing the poverty level its donations to social causes and its IT investment (it has the largest ATM network in the amongst local people. The bank has a full-fledged commercial banking country). The bank has around 1.5 million consumers served by 101 branches, as well as 1,608 operation and has a strong client base across the country with 71 ATMs. branches and SME Centers, and has plans to add more branches. DBBL is the first bank in Bangladesh to introduce a mobile banking service. Bangladesh Bank has granted licenses to more than a dozen banks to initiate mobile banking with the aim to connect the deprived section of the society with the modern banking system. DBBL is operat- SIBL offers more than 50 different types of deposit schemes. The following scheme is targeted ing this service through the Banglalink and Citycell mobile operators and 1156 approved agents more specifically towards garments workers: throughout the country. Anyone can open a bank account by visiting any of the approved agents, showing proper documents, and paying a fee of Tk. 10. The subscriber must own a Surbonreka Scheme mobile phone in order to use the service. Once the account is created, a 4 digit mobile banking Monthly Deposit (Tk) Tenure (Yrs) PIN code will be provided to perform various banking activities securely and secretly. The 3 yrs 5 yrs 10 yrs subscriber can withdraw and deposit cash from his account at the agent using his mobile 100 4341 8277 23691 phone. 200 8682 16555 47383 250 10852 20693 59228 300 13023 24832 71704 400 17363 33109 94756 500 21704 41386 118457 1000 43409 82773 236913 The scheme was introduced in April 2011 and is for only female workers. A cumulative interest of 12.5% is applied on the deposit amount. Workers have to deposit between Tk 100-1000 every month and will be able to access their deposit only after maturity. Study on Deposit Mobilization for Readymade Garments Workers in Bangladesh Study on Deposit Mobilization for Readymade Garments Workers in Bangladesh 36 Local Initiatives Local Initiatives 37 bKash % BB cheaper bKash Limited is a joint venture between BRAC Bank Ltd., than banks Bangladesh, and Money in Motion LLC, USA. Ensuring access AVERAGE 3.9 4.8 19% to a broader range of financial services for the people of 2.8 Sending 2.4 12% Bangladesh is the ultimate objective of bKash. 2.8 24% Receiving 2.1 3.7 It has a special focus to serve the low income people of the country and promote sustainable Short-term safekeeping 5.2 -43% micro-savings to achieve broader financial inclusion by providing financial services that are Medium-term savings 3.3 50% 1.6 Banks convenient, affordable and reliable. This will benefit the country as 83% of the population lives 6.9 Bill Payments 3.4 50% Branchless Banking under $2 a day and access to finance can help in improving their economic situation. Less than 8.4 12% 15% of Bangladeshis are connected to the formal financial system whereas 44% of total High Usage 7.4 population has mobile phones. Providing financial services using this mean can make the 3.3 M-PESA Customer 2.9 12% service more accessible and cost effective for the vast population of Bangladesh. Kenya Bank Customer 7.5 14% 6.5 Price bKash offers a full-scale mobile phone-based payment switch which is capable of linking with 0 2 4 6 8 10 (US$ PPP) multiple banks on a case-by-case basis. bKash has linked with Grameen Phone and Robi to deliver the service to potential clients. It has partnered with BRAC NGO to roll out its agent network. Currently more than 3000 agents covering 80% of the country has already been deployed, which will increase to over 7,000 by June. Bank branches require considerable investment in infrastructure, equipment, human resources, and security. By contrast, branchless banking leverages existing infrastructure (agent shops) and Many initiatives are being implemented worldwide focusing on financial inclusion, equipment (in many cases, mobile phones). The study only analyzed banks which target micro-savings and branchless banking. However, even internationally, few initiatives low-income customers and selected the cheapest comparable accounts for these customers. specifically targeting factory workers can be considered successful. This section of the report Banks in developing countries target the more affluent segment of the population. If the study has therefore been expanded to include a range of different branchless initiatives that have been is expanded to include these banks, the gap between traditional and branchless banking would designed to increase outreach to the lower income bracket in general. grow wider. Comparing Branchless and Traditional Banking According to a recent CGAP research it was seen that there is a significant difference in costs of running branchless and traditional banking services. The research compares 26 branchless banking pioneers and traditional banks with products aimed at the same kind of customers. On average branchless banking is 19% cheaper - the average monthly cost of using a branchless banking service is US$3.90 compared with US$4.80 when using a traditional bank. Branchless banking is particularly cheap (50% cheaper) if clients use it for medium-term savings and bill payment. In the case of short-term safekeeping, banks as a group are cheaper (43%) than the branchless banking pioneers. In other use cases (sending, receiving, high usage, and typical M-PESA and Kenya bank customers), branchless banking is 12% to 14% cheaper. Study on Deposit Mobilization for Readymade Garments Workers in Bangladesh Study on Deposit Mobilization for Readymade Garments Workers in Bangladesh 38 International Initiatives International Initiatives 39 Geosansar TPC Geosansar is a Hyderabad based social enterprise established to provide practical financial The Asian Development Bank provided technical assistance education and thereby promote financial inclusion amongst those who are not served by to the National Bank of Cambodia and the microfinance mainstream banking service. Since its launch a year ago, Geosansar, the brainchild of British industry to strengthen the capacity of MFIs to deliver entrepreneur Nish Kotecha - who still acts a consultant to the business - has already racked up voluntary saving services. The project ran from April 2006 58,000 account holders and opened 74 kiosks in five cities including Hyderabad, Delhi, Tirapur through to June 2008. Three MFIs (Amret, CEB, and TPC) and Bangalore. were selected on a competitive basis to participate in the project's savings product development program by means of Geosansar's kiosks, which act as sub-branches of the State Bank of India (SBI) with banking a competitive tender process. All three MFIs successfully run from a laptop computer, are staffed by workers trained to help educate people about developed a variety of savings products. The products were banking services and the benefits of saving. They also sell life insurance policies and allow relatively simple in design and packaged such that they were attractive and convenient to customers to transfer money electronically to other bank accounts. potential clients; and in convincing clients as to their trustworthiness. TPC (Thaneakea Phum Cambodia) was launched in 1994 as a credit and savings project of the Small Enterprise Development Program of Catholic Relief Services (CRS) in Cambodia. In 2002, CRS/TPC was officially incorporated into a limited liability company, Thaneakea Phum (Cambodia) Ltd, and became a locally registered and licensed microfinance institution in 2003. TPC had planned to offer a savings products targeted at three specific market segments. These three segments were; garment workers, hospitality workers (tourism) and farmers. TPC had intended to initially focus upon the development of a savings product called "Commitment Savings" for garment workers in the Phnom Penh region. TPC was unable to continue this product rollout as it could not meet regulatory minimum capital requirements for the issue of the new Central Bank-controlled microfinance New Look and Primark, UK-based clothing retail chains, are working with Geosansar to set up deposit-taking license. savings bank accounts for workers in factories supplying the retailers with clothing. The project is part of efforts by The State Bank of India to improve financial access. It has hired Geosansar Wing as its agent to open small banking kiosks in factories and poor areas which have been traditionally ignored by banks because of the high costs and low returns involved. Wing was a wholly owned subsidiary of Australia & New Zealand Banking Group Limited (ANZ) until it recent sale At the 10 factories where it currently operates, monthly or weekly pay goes directly into in late 2010. WING is a mobile payments provider that workers' bank accounts, helping ensure they are paid the right amount at the right time. offers its customers a money transfer service within Primark and New Look expect the system to be operating at 100 of their factories by the end Cambodia as well as allowing customers to purchase airtime. of this year and factories working for other retailers including Tesco are set to join the project Customers can use the WING Cash Xpress agents to cash imminently. in or cash out as well as to purchase goods and services. Geosansar has recently begun trials of a rural version of its bank, where services are offered by WING is targeting those Cambodian customers who are generally unbanked, but nevertheless a member of staff on a motorbike. Staff member visit villages at set times and can help pay out have important financial service needs. WING Cambodia began developing their mobile money electronically transferred from family members working in urban areas. Geosansar & payments business model in February 2008, with a commercial launch in January 2009. It is State Bank of India visits believe that every village has the potential of 200-300 accounts. The currently operating in all of the nation’s 24 provinces with more than 200,000 registered target is to cover 1,381 villages by March 2012. customers and 700 agents. Study on Deposit Mobilization for Readymade Garments Workers in Bangladesh Study on Deposit Mobilization for Readymade Garments Workers in Bangladesh 40 International Initiatives International Initiatives 41 Wing has also entered into partnerships with MFIs such as Vision Fund and Angkor Mikroheranhvatho Kampuchea (AMK) to use their extensive branch network to provide Wing’s services to customers. Garment workers and microfinance institutions (MFIs) are among the market segments WING has targeted. There are more than 300,000 garment workers in 300 or so factories in Cambodia, who send half of their salary ($20 - $30) home at a cost of $2. Thus, they are paying up to 10% of the amount in transaction fees. WING is providing the same service at a cost of 50 cents. Wing also provides a payroll product enabling garments employers to log in through a virtual private network (VPN) and upload a file of employee’s salaries. Lemon Bank Lemon Bank is led by the former Argentine founders of a financial service company, who reinvested the sales proceeds of a part of their business empire in the establishment of the Lemon Bank. Lemon Bank began operations in June 2002, with an initial investment of US$40 million. A private bank, it is devoted exclusively to correspondent (agent) banking. It’s one office in São Paulo serves as its headquarters, together with its network of 5,579 correspondent banking outlets across the country. These outlets are mainly retailers (minimarkets, pharmacies) and payment outlets subcontracted by management companies. The mode of delivery of services to the end client varies. In some locations, existing employees of the correspondent are used to provide services; in others, a separate kiosk has been established within the correspondent’s premises, manned by a bank employee or by staff of the management company. The primary target clientele of Lemon Bank are the unbanked in dense urban areas. Lemon Bank offers five different current accounts that vary in the number of free transactions offered and cost between USD 0 – 7 per month. Credit services are also offered and, in this case, there is some basic risk control mechanism as the owner of the outlet provides an opinion based on customer history. Additionally, formal credit evaluation and approval processes are applied by the Bank. Lemon Bank’s Conta Brasil, a current account, can be opened by anyone with proof of residence, identity and tax documents. Proof of income is not required. Clients have to pay a fee from R$0.30–R$1.00 for each transaction above the five free transactions permitted per The Lemon Bank model allows it to reach customers in remote areas and increase customer month. The bank offers deposit services and although it offers a range of financial services convenience. Data also shows that by employing this model the bank has been able to reduce exclusively through retail outlets, it is largely dependent on bill payment services. The bank personnel cost by 1/3rd and reduce facilities cost by 50%. tried but could not successfully offer savings. The credit offering has been decreased due to lack of funds. Study on Deposit Mobilization for Readymade Garments Workers in Bangladesh Study on Deposit Mobilization for Readymade Garments Workers in Bangladesh 42 International Initiatives International Initiatives 43 UBL Omni UBL is one of the leading banking and financial services firms in Pakistan, which operates a network of over 1,121 branches across the country, with 17 overseas branches and nearly 14,000 staff. UBL’s development of a country‐wide branchless banking platform began with its introduction in 2005 of a mobile wallet named Orion to existing UBL customers. Leveraging the Orion experience, UBL refined its technology platform and business plan, and developed more structured process flows and controls based on the customer feedback and market response. This eventually paved the way for the current model of UBL branchless banking, called Omni. The Omni branchless banking system offer clients the opportunity to open a bank account, perform deposits and withdrawals, pay for goods and services, and remit funds – and perform these functions in their corner shop or market stall that is closest and familiar to them. Currently 5802 agents are serving more than 150,000 clients. It is envisioned that Omni can be further leveraged to create a widely used merchant based payment capability where regular walk‐in clients can pay for goods and services; and where local shops accept payments and transactions via the Omni system. UBL’s ultimate goal remains to lead UBL Omni to evolve as an “alternate payment mechanism” to cash, which can replace not only card and ATMs but also a large proportion of transactions currently conducted in cash and through informal mechanisms. In Kenya, with banks often few and far between, 65% of the population uses M-PESA. 81% of M-Pesa M-PESA users said they used M-PESA for saving. While M-PESA was not originally conceived as a savings service, the system is being used by people as a safe store of value. For unbanked In March 2007, Kenya’s largest mobile network operator, Safaricom (part of the Vodafone customers, it may be their first experience with electronic forms of savings. Although M-PESA Group) launched M-PESA, an innovative payment service for the unbanked. “Pesa” is the balances do not earn interest, the service has some of the functions of a bank account but is Swahili word for cash; the “M” is for mobile. The product concept is very simple: an M-PESA much easier to access, and much easier to manage. customer can use his or her mobile phone to move money quickly, securely, and across great distances, directly to another mobile phone user. The customer does not need to have a bank Equity Bank & Safaricom has also introduced M Kesho which is an interest-bearing bank account, but registers with Safaricom for an M-PESA account. Customers turn cash into account. Customers can withdraw cash from their Equity Bank Account to their M-PESA e-money at Safaricom dealers, and then follow simple instructions on their phones to make accounts and customers can also deposit through their M-PESA accounts to their M-KESHO payments through their M-PESA accounts; the system provides money transfers as banks do Bank account. Other features of the account include Micro credit facilities (emergency credit in the developed world. The account is very secure, PIN-protected, and supported with a 24/7 availed through M-PESA), Micro insurance facilities as well as a personal accident cover that service provided by Safaricom and Vodafone Group. translates into a full cover after 1 year. For one to open this account, the person must be an M-PESA subscriber. Since its inception, over 14 million Kenyans have registered to use M-Pesa, and over $8 billion has been transferred over the system. The explosive growth was also mirrored in the growth of M-Pesa agents which amounts to more than 28,000 at present. M-PESA has also launched its services in Tanzania, South Africa, Uganda, Rwanda and others. Currently it is transacting more than $1 billion a month in East Africa. Study on Deposit Mobilization for Readymade Garments Workers in Bangladesh Study on Deposit Mobilization for Readymade Garments Workers in Bangladesh 44 Conclusions Conclusions 45 RMG workers can be seen to currently have extremely limited access to formalized financial Although workers are currently satisfied with being paid in cash, they see potential benefits services. When considering the products and services that can be offered to the “typical” of being paid electronically as efficient and secure. The main reasons for not wanting to be (matching the majority profile) RMG worker by a commercial bank, it is important to consider paid this way were that they don’t have a bank account, and they prefer to receive their a number of key factors: money in person so they can address discrepancies on the spot. • The perceived need for different products by the worker themselves. There should be focus • The ways in which they would need to be able to access the services. Accessibility outside of on targeting services/products for which there is a demand and value addition for workers. working hours in convenient locations close to the factory or home is of primary To understand “need” it is necessary to analyze the challenges they are currently facing and importance. A very limited number of commercial banks currently have branches near to design products to address those challenges. In order to do this, the gap between “what the workers’ factories or homes – of those, few have ATMs and none are open outside of workers have” and “what workers think they need” is a key indicator, as well as any areas factory working hours. where they are being overcharged or experiencing difficulty. • The cost to the bank of managing a high volume of low-value accounts held by clients who Based on the findings, it seems that the greatest current demand gap has been seen the are extremely price-sensitive. Most commercial banks are unwilling and unable to open a ‘savings accounts’ – a combination of short term with on-demand withdrawals and mid to current account for every RMG worker, as it is not always cost effective. This is so, as the long term for fixed future needs. Amongst those who currently save regularly, a typical cost of opening and running them exceeds the benefits they bring. Savings accounts with amount is Tk.500-1000 per month. Few (less than 20%) know how much interest they are regular low deposits present the same challenge, requiring an over-the-counter transaction receiving at the moment, and only 8% of those with accounts rated profitability (interest) as (which has a typical cost of Tk 40-60 when salaries and branch overheads are factored in). their main reason for savings. This indicates that imperative to developing an effective The survey showed that willingness to pay fees for banking services was fairly evenly spaced program is to have a financial awareness training to showcase the options of savings and its between “not willing” and “depends on how much”. intended benefits. It is envisioned that once the target group of workers become comfortable with savings and banking services, some of the beneficiaries will become future A number of possible ways of addressing these needs were considered, with pros and cons of entrepreneurs. This has an implication for promoting greater gender inclusion, as women each aggregated and discussed both with IFC and its partner banks. These are shown below: comprise 85% of the RMG working population. Option 1: Continue  no pressure for cash out at x Pressure to deposit at pay paying workers in cash. pay day day  worker can deposit when x Access limited to factory in Position bank agent in they want working hours factory to take savings  Limited requirement for x Labour intensive deposits. bank technology integration x No solution to cash holding Study on Deposit Mobilization for Readymade Garments Workers in Bangladesh Study on Deposit Mobilization for Readymade Garments Workers in Bangladesh 46 Conclusions Conclusions 47 Option 2: Pay workers  Bank receives x Rush to withdraw at Option 3: Pay  M-wallet designed to run x Rush to withdraw at pay into prepaid card or temporary benefit pay day workers into mobile through mobile phone and day “payroll” accounts. of deposits, plus wallet agent network processing fee from  Mobile wallets and agent x Fees for cash out Enable withdrawals networks already Position ATM near factory through m -wallet established in Bangladesh factory and enable  Savings accounts x ATM deployment agents  Mobile -managed savings x Not all workers have transactions through that don’t require and maintenance and loan accounts are mobile phone ATM in-person deposits expensive , and using Link savings accounts cheap to operate and withdrawals are other banks’ ATMS to m-wallet  Instant “send money Link savings accounts cheaper for bank to will result in fees for home” option to prepaid card maintain worker, especially for  Workers can process small frequent transactions anytime amounts x ATM s generally do not hold small denominations that Option 3a:  M-wallet designed to x Rush to with draw at low income clients run thru mobile phone pay day need Option 3 PLUS: and agent  Factory-  Mobile wallet and x Fees for cash out x Requires bank to based/staffed agent network already implement a prepaid agent/s (existing established card management factory staff)  Mobile -managed x Not all workers have system and issue cards  Agent “loan phones” savings and loan mobile phone to all workers – workers given accounts are cheap to x RMG worker’s SIMs which they can operate typical interactions do use in any phone.  Instant “send money not accept cards Agents provided home” option x Linked savings with spare low -cost  Workers can process accounts will require phone for use by transactions anytime customers development of transfer facility via ATM Study on Deposit Mobilization for Readymade Garments Workers in Bangladesh Study on Deposit Mobilization for Readymade Garments Workers in Bangladesh 48 Recommendations Recommendations 49 IFC’s aim is to deploy a pilot program with one or more partner commercial banks and a Delivery Channels number of garment factory workers. Bearing in mind the findings and conclusions above, it is important to ensure both that the products offered will be readily taken up by workers, and can Providing low-value accounts to low-income workers has been shown through the desk be cost-effectively offered by the banks. research to be extremely expensive for a commercial bank. The cost of establishing such accounts on a typical commercial bank core banking system is high, deploying additional ATMs Products specifically to cope with large numbers of small value withdrawals does not make financial sense, and as can be seen from the desk research, the cost of branch time spent processing small RMG workers have been seen to be transient: often moving from one factory to another. For deposits and withdrawals is also prohibitively expensive. However, the cumulative benefit of this reason it is proposed that all products offered are portable i.e. not tied to a specific factory, holding many small deposits can be significant – the challenge therefore lies in minimizing the but instead belonging to the worker and enabling them to continue their usage of the services cost of maintenance and delivery. wherever they work. As can be seen in the desk research, outreach to low-income workers in developing countries • A “liquid” savings account, enabling on-demand deposit and withdrawal. Such an account has been successfully achieved through the implementation of “branchless” channels – utilizing would be suitable for short-term flexible savings, when there is no particular timeline for retail outlets as agents, and enabling self-operation of account transactions through mobile withdrawal – acting more as buffer to cushion against unanticipated expenses or as a safe phones. The branchless, self-service approach effectively removes the people-intensive aspect place to keep unspent salary (however small) until such time as it is needed. Interest rates need of serving large numbers of low-value clients and makes offering reasonably-priced financial not be high, given the current behavior of saving primarily at home. services viable for banks. • A short-term commitment savings account, with an agreed monthly deposit amount for a True cost-effectiveness, and maximum value to the implementing bank, can be achieved when particular period of time. Unlike a term deposit, the amount could be withdrawn at any time, it is able to offer all of the products highlighted and “outsource” the deposit and withdrawal but inability to meet the committed targets could result in a penalty or reduced interest rate. methods to either a number of agents, or to the customer themselves. It is proposed that this is This product could be geared towards a particular aim of the worker, such as buying a addressed by a combination of a number of different services: television set, or a particular event, such as Eid. • A “mobile wallet”, running on a separate platform to the CBS, that enables customers to sign • A longer-term commitment account, focused on saving towards a more distant event. The up a “virtual account” linked to their mobile phone. attributes of this product would be similar to that of the short-term offering, but offering a higher interest rate subject to targets being met. • Integration with an MFI-type system capable of managing many small accounts, to sit alongside the existing core banking platform - This would link to the mobile wallet, and For those who have demonstrate an ability to save over a period of time, a line of credit that can enable automated signup (KYC having already been undertaken when the wallet was created) be drawn down on when the need dictates and repaid on a flexible basis. The amount granted to a range of different accounts on-demand, and the ability to transfer between those can be directly linked to the savings they have available, and enables cushioning against accounts and the wallet via the mobile phone. unanticipated expenses without comprising their commitment savings. • For workers who don’t have a mobile phone (50%), the mobile wallet can be operated using a shared phone (or one supplied by the agent). The worker only needs a SIM and their PIN number. In this model, the bank can either visit the workers on a periodic basis to conduct signups, or may (subject to regulatory approval) outsource the KYC process to a designated agent, either inside or outside the factory. There may be minimal resistance to receiving their salary electronically as long as a withdrawal location is nearby and they receive confirmation of the salary amount (and calculation basis) immediately. Study on Deposit Mobilization for Readymade Garments Workers in Bangladesh Study on Deposit Mobilization for Readymade Garments Workers in Bangladesh 50 Recommendations Recommendations 51 Financial Literacy Training Replicating Learning from Successful Models For workers to understand the benefits of the product and services that will be offered, they There should be a concerted effort to identify, evaluate and support the replication of will need training. Workers have already expressed their interest to learn more about long term successful models for expanding financial services to RMG employees. The few models savings and about understanding banking services. Financial literacy training can be conducted featured in this report have shown that it could be profitable for commercial banks to actively at the garments factory during lunch hours, and include lectures, handouts, in class target the low income group such as RMG employees. However, additional data may be assignments, videos etc. A lot of work has already been done by various organizations to needed. Increased efforts to capture these models and replicating them will be critical to develop such training content –it is freely available and capable of being adapted to suit the enabling the RMG employees to access the financing they need to grow. Bangladeshi RMG worker environment. Furthermore, incentivizing commercial banks to further segment their clients and create or Workers have also indicated their areas of interest regarding the training. Most workers think customize products and services to address the needs of these segments will help financial that savings is an important service needed for them and 74% of the workers want to learn institutions in serving their SME more efficiently and profitably. The experience of existing more about planning income & expenses for long term savings. 73% of the workers want to initiatives and efforts can be leveraged, scaled-up, and complemented on a strategic basis. learn more about the different banking services available and compare them. 66% of the workers have indicated their interest in learning more about the different type of insurance services available. In order to prevent resistance to the transition of salary disbursement from cash to an electronic method, training will also need to be interactive – allowing workers to raise concerns and objections that must be able to be addressed prior to any pilot being deployed. Identifying key factory workers, providing them with intensive training and establishing them as community “mavens” could also prove beneficial in removing the “them and us” distinction that low income people often feel towards financial institutions. 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