Publication - Project Report
Research shows that many garment workers are cash constrained at the end of the month. In a 2016 survey of 3,000 workers, 32% reported borrowing at the end of the month to meet family needs. This study examined whether addressing end-of-month liquidity constraints can help workers to reduce reliance on pay-day loans and smooth their consumption.
This study tested how an improvement in the ability to income smooth (either through changes in the frequency of wage payments or the availability of a short-term savings product) affects worker productivity. We leveraged an existing sample of garment factory workers in Bangladesh on whom we had already collected extensive demographic, financial, and productivity data covering a time period of approximately two years. We designed a randomised controlled trial (RCT) that varied the income stream of workers in this population over time by offering a bonus payment of 10-15% to workers in the sample at different times during the month.
We find differences in respondents’ ability to smooth consumption and respond to shocks at the end of the month. Having access to technologies to save seems to improve workers’ ability to smooth their consumption. We find that workers who were being paid electronically through a bank or mobile account were less likely to spend their cash transfer on food and basic consumption. They were also less dependent on informal loans. These workers appear to be less sensitive to end-of month transfers because they face fewer liquidity constraints than their peers. This finding supports our previous research showing that electronic wage payments helps workers to smooth their consumption.
Among workers who struggle to maintain liquidity, the end of month transfer helped to reduce reliance on short-term loans and to increase consumption. Providing electronic wage payments or delayed payments offers alternatives to short-term payday loans from shops, friends, and family.