High interest rates, low financial literacy amongst barriers to RMG remediation: IFC/ILO Study

High interest rates and a lack of financial literacy are highlighted as major obstacles to factories in the Bangladesh Ready Made Garment (RMG) sector from obtaining remediation financing according to a report launched by the International Finance Corporation (IFC) and International Labour Organization (ILO) in Dhaka today.

Press release | Dhaka, Bangladesh | 20 June 2016
Panel at the launch of the study
©ILO
According to the report, interest rates that can range from 9%-18% were cited as a barrier to carrying out remediation. Meanwhile RMG owners also need support to present audited balance sheets, profit and loss statements and cash flow projections to banks and prospective investors.

Entitled Remediation financing in Bangladesh’s Ready Made Garment Sector: An Overview, the report was jointly commissioned by IFC and the ILO to analyse the cost of safety remediation for structural, electrical, and fire safety work in RMG factories, as well as the ability of factories to finance this work.

Ms Wendy Werner, Country Manager, IFC Bangladesh said, “It’s imperative for the RMG sector in Bangladesh to realize the significance of remediation finance and, respective factories ought to look at expenditure for safety as an investment. Once compliance levels are respected, buyers will have more confidence, leading to overall industry expansion.”

Mr Gagan Rajabhandari, Deputy Director of ILO Bangladesh, said, “Only when remediation is completed will the safety of workers in export-oriented RMG factories be ensured. Efforts are needed to ensure that financing is available and accessible for all RMG businesses; however, those which are already able to self-finance this work or access loans should do so without delay.”

According to the study, the cost of remediation if the factory does not need extensive structural retrofitting work can range from $20,000 to $900,000. The total remediation cost for 80% of factories ranges between $ 100,000 and $250,000. It is estimated that 75% of factories in Bangladesh will not need large structural retrofitting work, and therefore will fall within this range.

A number of other recommendations including a better understanding of facilities such as the Green Re-financing scheme and the provision of additional financing from the government and development partners are also made in the study.

Over the last two years it is estimated that remediation activities worth some USD 294 million have been carried out in the Bangladesh RMG sector through the actions of the Bangladesh Accord on Fire and Building Safety and the Alliance for Bangladesh Worker Safety and individual factory owners. The study also includes a review of Bangladesh’s banking sector and the credit facilities recently developed by international organizations such as IFC, JICA, AFD and USAID, which make available some USD 187 million specifically for RMG remediation.

Following the Rana Plaza collapse in April 2013, efforts began to inspect all export-oriented RMG factories throughout Bangladesh for structural, electrical and fire safety by the Accord, Alliance and the national initiative support by the ILO with funding from Canada, the Netherlands and United Kingdom. By the end of December 2015, the inspection process was complete with 3,632 factories surveyed by the three initiatives.