The Asian Development Bank (ADB) has signed a loan agreement with BRAC Bank to support financing construction and upgrade of ready-made garment factories in Bangladesh.
The financing would be made under the $30 million loan facility earlier approved by ADB’s Board, said a press release.
The loan is expected to facilitate the steps Bangladesh taken to meet globally agreed standards for structural improvements and worker rights and safety.
The loan would also be used to build badly needed effluent treatment facilities in the textile and garment industry.
Many factories in the country still operate without effluent treatment plants, resulting in widespread water pollution which is particularly damaging in rural areas where communities rely on surface water for washing, bathing, irrigation and fishing.
“Bangladesh has been taking steps in conjunction with the international community, to make its factories safer and to improve conditions for workers,” said Biao Huang, Investment Specialist in ADB’s Private Sector Operations Department.
“… but there is a substantial cost and a need for long term funding that is not readily available from current sources,” he said.
The loan with a 5-year tenor is expected to help meet the need for longer term finance currently unavailable from local banks and international capital markets, and would be used exclusively by BRAC Bank to finance socially and environmentally sustainable projects.
Bangladesh is the world’s second largest exporter of textiles and garments, accounting for over 80% of the country’s merchandise exports in fiscal year 2014, and employs 4.2 million workers.
However, the industry has suffered setbacks after two disasters in recent years – the 2012 Tazreen factory fire and the 2013 Rana Plaza Building Collapse.
In the wake of these events the government entered into a compact with the European Union, the United States, and the International Labour Organization to commit to improvements in building safety, labor rights, and business conduct.
Separate accord and alliance agreements have also been signed by global apparel companies, global and Bangladeshi trade unions, and nongovernment organisations to improve business conduct and worker safety.
Transforming the factories in line with the compact and other agreements, however, requires substantial outlays, with the cost estimated at around $250,000 to $400,000 per factory.
Given the lack of long term funding available in Bangladesh, ADB’s loan will enable BRAC Bank to offer longer tenor financing to companies wanting to upgrade and improve structural, safety and social standards at their factories, ADB said.
ADB will also be working with the bank on a rollout of a gender action plan, which will ensure factory upgrades reflect the needs of women.
This includes the provision of day care facilities, safety measures for females, and health clinics. Women make up nearly 80% of all workers in the textile and garments industry in Bangladesh.
ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration.
Established in 1966, ADB in December 2016 will mark 50 years of development partnership in the region. It is owned by 67 members—48 from the region. In 2015, ADB assistance totaled $27.2 billion, including co-financing of $10.7 billion.