Why is cash a problem?

“You were sent here to ruin our lives. I want to be paid in cash!”

The day before her employer was to switch its payroll from cash to digital, Shumi was adamant about her preference for cash. It’s understandable why: Cash is the way of life in Bangladesh. When you can see, touch, and count cash, building trust in the idea of digital money can be daunting.

However, soon after receiving her salary digitally -- in her case, into a mobile money account -- Shumi quickly changed her perspective. She felt proud at being able to retrieve her salary herself from a mobile money agent.

And she even decided to keep a small balance in her account for emergencies.

Shumi’s story is playing out at pioneering garment factories across Bangladesh, as the country becomes a global leader in mobile financial services (MFS).

According to Bangladesh Bank, there were 41 million registered MFS accounts as of December 2016, a staggering 29% increase over a 12 month period.

The total amount of wages disbursed through MFS also surged from Tk154 crore to Tk235cr over the same period. Mobile financial services, such as bKash and DBBL’s Rocket, now account for the majority of the growth in financial inclusion in the country.

According to research by InterMedia, access to financial services increased between 2015 and 2016 primarily due to mobile money.

But why is cash a problem?

From a company’s perspective, cash is a terrible payroll solution. Cash must be physically transported from a bank to the workplace in armored vehicles, which is not only expensive but also risky because cash is prone to loss or theft.

Case in point: A garment factory in Gazipur was robbed this January by a group of men disguised as security guards. Delays in the transportation of cash can also create unrest among a company’s workforce, who often depend on their salaries to be paid on time in order to meet their monthly financial obligations such as rent and school fees.

In addition to the risk, the disbursement of cash wages has a significant impact on a company’s bottom line.

Mobile financial services such as bKash and DBBL have emerged as the most promising way to bring women into the financial system

According to a new study released by the United Nations’ Better Than Cash Alliance, cash payroll costs the average garment factory 750 hours of lost production and 542 hours of administrative time per month just in the counting and disbursement of cash wages.

Cash also creates hardship for workers. Research shows that poor people climb in and out of poverty throughout their lives and what usually sends them back is an unexpected economic shock such as an illness in the family or a loss of employment.

Cash savings do not support workers to build a safety net they can draw upon to cope with such shocks. Use of a formal account for savings can also help individuals build a banking history, which enables them to eventually access other critical services over time such as formal credit or insurance products.

The transition to digital wages benefits women disproportionately, because it often provides them with their first access to, and ownership of, a formal account. In Bangladesh, only one out of four women has an account with a formal financial institution.

Studies show that when women have ownership of their own accounts, they have more control over their finances and more influence over household spending. This benefits the family as a whole since women prioritise health and education when they spend, and their elevated role in the household can further help break the poverty cycle.

Likewise, according to the World Bank’s Global Financial Inclusion Index, there is a positive correlation between female labour force participation and female account ownership -- so the more access women have to financial resources, the more they are likely to do paid work which can benefit the overall economy.

Mobile financial services such as bKash and Rocket have emerged as the most promising way to bring women into the financial system, since it allows women to conduct financial transactions from their own phones, on their own time, and from anywhere.

Given the lack of mobility for many women in Bangladesh, these are important attributes for any product to be accessible to women.

Given the growing body of evidence around the benefits of digital payments for women and for the broader economy, a number of efforts are underway to digitise various payment streams. BRAC is working on an effort to digitise loan repayments for its microfinance clients, most of whom are women.

And the Prime Minister’s Office is partnering with Bangladesh Bank, as part of the Digital Bangladesh vision, to digitise social welfare payments and to enable digital payments for public and private services such as rent and utility bills.

It’s time for the private sector to also step up its commitment to wage digitisation. Despite the recent progress, 90% of wages in Bangladesh are still paid in cash today.

At BSR, where I lead the HERfinance program, we are partnering with Bill and Melinda Gates Foundation and several global garment buyers to help garment factories make the transition from cash to digital payroll.

Given that women make up the majority of the workforce in the garment industry, this effort has the potential to empower large numbers of unbanked women with access to and ownership of their own accounts.

Companies must join these efforts -- both multi-national buyers that purchase garments from Bangladesh, and Bangladeshi businesses -- to eliminate cash from the value chain.

Not only will their workers benefit, but their bottom line will as well.

Chhavi Ghuliani is an Associate Director at BSR (Business for Social Responsibility) and manages the HERfinance program.