DHAKA (ILO News) - Bangladesh had experienced several tragic industrial accidents between 2012 and 2013 leading to the loss of thousands of lives. In the aftermath of these incidents, 3,780 export-oriented RMG factories were inspected for electrical, fire and structural safety by two European and American buyer platforms as well as Bangladesh government’s National Initiative supported by the ILO.

Smart Knit Limited is one such factory. It employs around 1000 workers and was inspected for safety by the Government of Bangladesh in 2015. Based on inspection findings, all factories were required to remediate to comply with national building safety standards. However, many small and medium-sized factory owners struggled to fulfil the remediation work due to lack of access to necessary finances.

In this context, a number of development partners including Japan International Cooperation Agency (JICA), French Development Agency (AFD), German Development Agency (GIZ), International Finance Corporation (IFC), KFW Development Bank and United State Agency for International Development (USAID) came forward and established special credit facilities at low interest rate (4-7%) to support remediation in the RMG sector. To help RMG factory owners access these remediation finance schemes, the ILO’s Improving Working Conditions in the RMG Sector Programme, funded by Canada, Netherlands and the United Kingdom, facilitated a number of workshops between and among factory owners, employers’ organizations, commercial banks and financing institutes.

Smart Knit had applied and received remediation fund from the Two Step Loan (TSL) scheme established by Bangladesh Bank and financed by JICA.

Commercial Executive at Smart Knit, Maruf Hasan said, “After the Rana plaza accident, we realized that we needed to make our factory compliant in order to ensure workers’ safety and sustain our business. We learnt about the remediation schemes at an ILO workshop and built a relationship with Mercantile Bank Ltd., a financing institute participating in the TSL. They offered us loan at 6% interest which is very favourable compared to loan packages currently offered by commercial banks at 13-15% interest rate.”

Maruf added that they used the JICA fund to retrofit columns and implement fire and electrical safety measures in the factory. “This work was necessary to meet the expectations of the government and buyers.”

Mr Mahmudul Hossain, First Assistant Vice President (FAVP) of Mercantile Bank Ltd said that his bank was happy to be affiliated with the TSL scheme. Explaining the loan disbursement process, he said, “We received loan from Bangladesh Bank at 2% interest and provided to our clients (RMG factories) at 5-6% interest rate. As it is a special scheme, Bangladesh Bank had strong instructions to do proper risk assessment before disbursing the loan. We did rigorous analysis to understand the processes and requirements from our sides.”

Although it took them a year to receive the funds from Mercantile Bank, Smart Knit has impressed its buyers and financer with the remediation work it undertook. Maruf says, “As a compliant factory we are receiving good work orders and we hope that this will give us a leverage to negotiate with our buyers. Most importantly, the workers appreciate our efforts to improve working conditions in the factory. They feel safe in their workplace.”

Background

Between 2017 and 2019, the ILO and Bangladesh Bank jointly organized a number of outreach activities targeting factory owners to orient them about the available schemes and the remediation application process. Over 300 factory owners attended these sessions and received remediation kits which had detailed information on remediation process, available remediation finance options and relevant contacts. The labour inspectors from the Department of Factories and Establishments (DIFE) also distributed these information materials in different meetings with the factory managements.

Many factory owners who attended ILO workshops eventually submitted loan applications to commercial banks for conducting remediation.

Furthermore, the ILO has engaged with the “Support to Safety Retrofits and Environmental Upgrades in Bangladesh RMG sector (SREUP)” programme jointly financed by AFD, EU, KFW and GIZ to accommodate the suggestions and lessons learnt from factory owners and business associations on the remediation finance application process. The ILO’s key contributions in the SREUP initiative include flexibility in eligibility criteria for RMG factories located in rented buildings, provision of incentives for RMG factories and development of training materials for RMG factory management.