The ready-made garment (RMG) industry of Bangladesh has played a significant role in terms of economic development of the nation through export and foreign exchange earnings, employment generation, and poverty minimisation. Over the past few decades, the sector has also gradually become one of the largest apparel exporting countries in the world. However, two major accidents in the industry - the fire incident in Tazreen Fashion Ltd. in November 2012 in Ashulia, Savar, which killed at least 117 people and over 200 were injured, making it the deadliest factory fire in the nation's history; and second - the collapse of the Rana Plaza building in Savar in April 2013 resulting in the death and injury of more than 2,000 workers which is considered to be one of the worst industrial disasters in recorded history of Bangladeshi RMG sector, immensely impacted the sector negatively and forced the sector to perform certain reforms and also opened up avenues of improvement and ensuring safety for the factory owners, and in particular the workers.
Attention has been directed at improving structural, electrical, and fire safety in the RMG sector of Bangladesh, particularly after the Rana Plaza disaster. Since then, compliance in the Bangladeshi RMG industry has become a major global concern. Three initiatives were established to carry out structural, electrical and fire safety inspections in Bangladesh, specifically - Accord on Fire & Building Safety in Bangladesh (Accord); Alliance for Bangladesh Worker Safety (Alliance); and ILO-supported National Tripartite Plan of Action (National Initiative).
Results of the inspections prompted corrective action plans (CAP) including time-bound remediation actions so that the factories would have to implement these to improve worker safety. With time, these initiatives established essential ground rules and regulations for the garment factories that must be ensured or fulfilled to work with the respective affiliated renowned overseas brands.
Considerable progress had been made due to these initiatives; however, a vast number of local manufacturers, especially the smaller factories face several challenges to comply guideline of safety programmes or to take measures to improve the factory's safety conditions primarily due to lack of funds and their incapability to invest a large amount of money to upgrade or meet the compliance requirements.
According to a study jointly conducted by ILO and IFC in 2016, safety remediation efforts are highly dependent on international buyers' requests and the strength of the relationship between the RMG factory and the buyers. Another important factor is the size of the factory (workforce & turnover); which again is an important consideration for local lending banks in approving factory loan applications.
Different safety measures and environmental programmes have already highlighted the importance of financial supports to expedite the remediation process for the RMG factories but accessing remediation financing has been quite challenging. There is a clear gap of funds available specifically for remediation financing and factories ability to avail the funds and until recently, there were no proper financial products specifically available to the RMG sector for remediation.
However, most of the credit lines failed to attract a large number of factories for applying and obtaining a loan in Bangladesh is a lengthy bureaucratic process - the complicated application procedure, high and unattractive interest rate, and long decision-making process are also identified as the main reasons behind falling short of these credit lines. Moreover, the factories are not well equipped or competent enough to apply for these credit lines and many factories have a misunderstanding of presenting proper, reliable audited financial statements to banks – which has a direct effect on the amount of collateral requested by financial institutions as a guarantee to the loan. As a result, only a small number of factories received the loan for improving their safety conditions.
As a proper line of credits are important for improving the present condition and retrofitting of the factories as well as it is necessary to have proper financial literacy and information about the credit lines. Hence, a different and feasible credit opportunity is necessary to capacitate the factories in applying and availing the financial product for their safety remediation.
There are also organisations, mainly local service providers (LSPs), who are offering a wide range of services to improve the safety conditions and environmental-related supports to the factories. Unfortunately, support by these LSPs is limited to technical supports; and therefore, support or guidance on the financial and accounting aspects remain unaddressed.
Keeping these realities in mind, the German Federal Ministry for Economic Cooperation and Development (BMZ) with the Ministry of Finance, Financial Institutions Division, Government of the People's Republic of Bangladesh as the lead executing agency, and the Bangladesh Bank as the implementing agency has commissioned a GIZ supported project titled "Support to Safety Retrofits and Environmental Upgrades in the Bangladeshi Ready-Made Garment Sector" (SSREU) to fill up the gaps in terms of identification of remediation needed and available finance to perform the remediation by the RMG factories of Bangladesh. The Centre of Entrepreneurship Development (CED) of Brac University (BracU) is the in-country cooperating partner of the project.
The project has been initiated to support an enabling situation to the factories by planning a mission to determine the technical assistance and capacity building measures needed to facilitate investments in terms of safety remediation, environmental and social upgradations. It also aims to address some capacity gaps in the private and financial sector and CED-BracU is providing the related capacity building training to the sector stakeholders on behalf of the SSREU project.
As safety remediation is a critical challenge to the sustainable growth of the RMG sector in Bangladesh, it is hoped that with strong knowledge and capacity building approach on financial literacy, the challenge could be properly addressed. By proper implementation of the SSREU project, it's capacity building initiatives and the offered credit line, the gaps between the factories' understanding in applying and availing the available remediation funds from the financial institutions will be surely minimised and the LSPs can assist the RMG factories in this regard.
Afshana Choudhury is the Deputy Director; Faria Ahmad is Senior Manager (Research & Knowledge Management); and Fahim S Chowdhury is Senior Research Associate at Centre for Entrepreneurship Development (CED), Brac University.