How digital nano loans are speeding up financial inclusion of RMG workers

RMG workers’ access to formal bank loans is very limited. Photo: Courtesy

Today, more than 42 lakh RMG workers significantly contribute to 10.35% of Bangladesh's total GDP.  These workers drive progress and have the potential to improve the quality of life across their communities. 

However, 25 lakh of them remain unbanked, and only 12.3% have accessed formal loans. The majority rely on informal loans with high interest rates, underscoring a critical gap in Bangladesh's financial landscape. The limited access to formal financial products poses a major barrier to financial inclusion, leaving many RMG workers trapped in costly informal lending cycles.

The financial gap is starkly reflected in the struggles of workers like Hridoy, a technician at an RMG factory in Dhaka. With rising inflation and a modest salary, Hridoy faced an acute crisis when his father suffered a stroke. Medical expenses began to mount, and he lacked the savings to even travel to his hometown. 

Due to the absence of collateral and credit history, his family members were unable to secure loans from traditional banks, leaving Hridoy uncertain in a moment of urgent need. Hridoy's story mirrors the struggles of countless RMG workers who face financial insecurity due to limited access, knowledge, and credit history for formal loans. Earning low wages (a minimum of Tk12,500), they often struggle to cover basic expenses. 

Additionally, their working hours often overlap with bank hours. There is also a general fear of the banking system, mostly due to the load of  documentation requirements. As a result, RMG workers often resort to high-interest informal loans from local lenders (sometimes with an annual interest rate of over 40%).

Many small and medium-sized factory workers, along with subcontracting manufacturers, still receive cash payments, lack bank accounts, and have no credit history or transaction records. Without collateral or entrepreneurial ventures, their access to formal bank loans is very limited. This highlights a significant gap in financial inclusion for RMG workers that market-driven innovative solutions, such as digital nano loans, can solve. 

Development organisations like Swisscontact are working on initiatives to address the needs of the low-income segment. These organisations have the capacity to improve financial inclusion of the underserved population as they have a deep understanding of their demand and behaviour. Also, these organisations are connected with both marginalised communities and factory management. 

For instance, Swisscontact's Sarathi-Improving Financial Health project, through partnerships with financial institutions, aims to bridge the gap between supply and demand, providing digital financial solutions for low-income communities, particularly RMG workers.

A transformative approach 

Bangladesh Bank has recently approved digital nano loans from several banks. Prime Bank offers loans up to 40% of a salary via the PrimeAgrim app, using AGAM International's AI-based credit scoring. 

Dhaka Bank PLC (DBPLC) provides loans up to BDT 50,000 through the e-Rin app, requiring a 9% interest rate and a Dhaka Bank account. City Bank offers loans up to BDT 30,000 through bKash.  

AGAM also offers an Earned Wage Access (EWA) product for those earning over BDT 25,000, allowing access to up to 80% of their salary with a processing fee of 0.5% to 2.5%. Other organisations like Wagely, Drutoloan, and Mitro also provide EWA options for RMG workers. 

Sarathi collaborated with AGAM International and DBPLC to bridge the financial gap by offering easily accessible digital loan products, designed specifically for RMG workers, by minimising documentation requirements and simplifying the loan process. 

Many RMG workers, like Hridoy, have benefitted from the PrimeAgrim  and e-Rin apps supported by the Sarathi project. With a nano loan of BDT 5,000, Hridoy covered his emergency needs during his father's illness and repaid the loan through his salary, ensuring his family's financial stability during the emergency.

The broader impact on financial safety 

Digital nano loans provide quick financial relief while promoting savings, planning, and credit history for RMG workers. Financial literacy programs linked to these loans help educate borrowers, empowering them to manage their finances better by avoiding informal and predatory lending.  

More than 2,000 workers located in Dhaka and Gazipur took formal loans within seven months through Sarathi's partner organisations, AGAM International and Dhaka Bank PLC.

Challenges and the way forward 

Although the usage of digital apps like PrimeAgrim and e-Rin for banking in Bangladesh is on the rise, there is still significant room for growth. This is especially true for female workers. Only 8% of the female RMG workers involved in Sarathi's interventions are using the digital loan services. 

There are many workers who do not have smartphones or internet access to these apps. Even if they have the internet and a smartphone, their use is usually limited to entertainment purposes as those are easy to use.  This is also especially true for female workers, who have a fear of using money management apps. 

Additional financial educational programs are needed to help RMG workers better understand the importance of financial products and promote the use of formal banking services, especially targeted towards female workers. 

Enhancing financial literacy and harnessing technology through strategic partnerships and innovative, market-driven financial products can empower RMG workers to engage with formal banking services. This approach also opens a vast, untapped market segment for Bangladesh's financial sector, driving growth and inclusion. 

In summary, digital nano loans offer a vital pathway to improving financial inclusion for RMG workers in Bangladesh, empowering them to address immediate needs and build financial stability. Development projects like Sarathi can play a vital role in fostering partnerships between RMG and the financial sector, acting as a key driver to address the financial well-being of RMG workers, and providing a sustainable solution to this significant market challenge. 

Sketch: TBS

Selinas Rukaiya Suhee is the coordinator, Monitoring and Result Measurement and Interventions of Swisscontact's Sarathi II project. 

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.