Retailers delaying funds for factory upgrades

Rezwan Selim, managing director of Softex Sweater, had to shutter one of his faulty units, Softex Cotton, in the capital’s Mirpur area after failing to receive remediation funds from his two main European buyers.

Before the closure of the factory, which has structural, electrical and fire faults, Selim sought $100 million in loans for paying his workers and the remediation works from the buyers, both of whom are members of the Accord.

The Accord is a five-year independent, legally binding agreement signed by 200 retailers, mostly based in Europe, to build a safe and healthy garment industry in Bangladesh.

“The buyers did not give me the loan, so I had to close down the factory. As a result, all 3,600 workers lost their jobs,” Selim told The Daily Star in a recent interview.

Selim’s case is not an isolated one. None of the garment factory owners received any loan or financial assistance from their lead buyers who are members of the Accord, although they had committed to do so.

“So far, only two factory owners got the money from a donor agency at high interest rates, but none from the retailers,” said Siddiqur Rahman, president of Bangladesh Garment Manufacturers and Exporters Association.

The Accord and the Alliance for Bangladesh Worker Safety were supposed to give financial assistance to the factory owners for remediation if any owner failed to manage the required funds.

Currently, about $200 million is available for remediation work. The International Finance Corporation is providing $50 million, Japan International Cooperation Agency $13 million, while the USAID is giving a guarantee fund of $22 million

Europe-based AFD will also be providing €50 million by mid-2016. All these funds are provided at a rate of 0.01 to 1 percent.

But the owners are not interested in taking money from this fund as the finance ministry and central bank are demanding interest rates of 10 to 13 percent, Rahman said.

“The factory owners will only take the loan from this fund if the interest rate is lowered to 4-5 percent,” he added.

Regarding financial assistance, Rob Wayss, Accord's executive director for Bangladesh operations, said several factories have received different types of commercial and financial support from the companies linked to the Accord. 

The support includes commitments to order volumes, long-term commitments to business with the factory, pre-payment or accelerated payment of orders so that remediation inputs and services can be purchased.

The Accord has also worked with the IFC in their setting up of a $50 million remediation loan fund, Wayss said.

“We continue our work with IFC and their local partner banks to help see as many loans as possible are made to factories that need this support.”

The information gathered from factory owners since July 2014 indicates that financing is not one of the major obstacles to completing the remediation, he said. The Accord has worked with the factory owners who have indicated that they need financial or commercial support to complete remediation.

“Our member companies have made more than $100 million in funds available for low-cost loans to factory owners seeking financial assistance with remediation,” said Mesbah Rabin, managing director of Alliance, a platform of 28 North American retailers.

“We've also established a worker support fund through which we have fulfilled 100 percent of the requests from factory owners, providing compensation to more than 6,500 workers displaced by factory remediation to date,” he added.

On average, an affected factory needs $12,000 for remediation, said Syed Ahmed, inspector general of the Department of Inspection for Factories and Establishments.

“All the affected workers got their dues and compensations. Until now, DIFE has received no complaints or claims from the affected workers of the closed factories by the Review Panel,” Ahmed added.