Japan has decided to redirect a Tk1bn fund from its SME financing project to the apparel industry of Bangladesh for improvement of working conditions.
The development emerged three days after a group of 70 global retailers, mostly from EU, agreed a plan to conduct inspections of garment factories within nine months in Bangladesh in an attempt to improve the safety standards.
Bangladesh Bank and Japan International Cooperation Agency (Jica) have reached an agreement in disbursing soft loans among the vulnerable factories to be identified by JICA experts and Public Works Department (PWD) engineers.
“The financing initiative is expected to commence soon on a pilot scale, with JICA’s fund contribution of TK1bn,” Bangladesh Bank Governor Atiur Rahman told a press briefing at Bangladesh Bank yesterday. The fund size of SME financing project is Tk5bn, which was launched by BB in June last year.
The independent government agency’s credit offer comes at a time when Bangladesh is facing global criticisms over safety concerns at the factories, after more than 1,100 people, mostly garment workers, died in nine-story building collapse at Savar on April 24, which is the largest ever industrial disaster in Bangladesh.
The idea of this initiative first came from the ambassador of Japan to Bangladesh, Shiro Sadoshima, which was supported by the governor and JICA chief in Bangladesh Takao Toda.
Vulnerable factory owners having membership of Bangladesh Garment Manufacturers and Exporters Association
(BGMEA), Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) and financial institutions will be eligible for this fund.
To ease stresses from cost burdens of rebuilding the factories, banks participating in this initiative will lend to the factories at an interest rate not exceeding 10% per annum, against which banks will draw refinance from BB out of the JICA funds at a concessional interest rate of 5%. But interest rate can be fixed on the basis of customer-banker relationship.
The financing scheme will be for a long term of up to 15 years, including a two-year grace period. The amount of financing for any individual factory shall not exceed Tk100m. A five-year time frame is envisaged for disbursements of JICA funds against the retrofitting or rebuilding loans by participating banks.
Bangladesh Bank Governor Atiur Rahman said the process will start with joint assessment of the factory building by a team of JICA experts and PWD engineers on the need of retrofitting or rebuilding and related cost implication, he said.
He said utilization of the loans will also be monitored jointly by PWD and JICA experts. In addition, the financing banks will also monitor the pace of implementation within their usual framework, he said. Costs of relocation of factories in unsafe rented premises, and costs of procurement of safety equipment will also be eligible for financing support under this initiative.
“Appallingly high fatalities and human distress in the recent Tazreen Fashions fire and Rana Plaza building collapse tragedies have brought home the pressing urgency of comprehensively and concertedly addressing issues in ensuring safe working environment for apparels sector workers in Bangladesh, for substantial visible progress in the near term,” said the governor.
Japanese ambassador Sadoshima said the amount of the fund is not so important… it will work as catalytic factor for raising awareness to come out of the national crisis.
“It is just a beginning. Cooperation continues to be extended to the need for taking immediate actions to address the RMG sector issues to rebuild the image of the sector and the country as well.”
Toda stressed on the speedy launch and implementation of the initiative to restore the confidence of international community on the RMG sector of Bangladesh.
