Alliance Sets Plan to Finance Bangladesh Factory Upgrades

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A woman visits the site of the Rana Plaza building collapse to mourn the loss of her daughter.European Pressphoto Agency

After the horrific collapse of the Rana Plaza factory building last year, the thorny question remained as to who would pay to bring Bangladesh’s garment factories up to code.

Now, some 18 months after the disaster that killed more than 1,100 people, an alliance of international retailers—led by Wal-Mart , Gap andVF Corp.—has come up with a plan. The group, Alliance for Bangladesh Worker Safety, has established a mechanism that will give Bangladeshi factories access to low-cost loans backed by a corporate guarantee.

Ian Spaulding, a senior adviser to the Alliance, said member brands reached an agreement with the International Finance Corporation, the World Bank group’s private-sector arm, to facilitate the loans, the first of which have been disbursed over the past couple of weeks.

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If the arrangement works as planned, it could be a boon to factory owners like Syed Kamrul Huda. Raising money “to comply with the new inspection regime has become a major headache,” said Mr. Huda, whose company makes clothes for European and U.S. suppliers, including VF and its North Face and Wrangler brands.

With thin profit margins and bank interest rates close to 18%, his company can’t afford to pay upfront the $1 million needed for new safety features that meet international standards, he said.

Last month Mr. Huda’s company, Arunima Sportswear, received regulatory approval for a loan of $900,000 from IFC to buy fire doors, safety lights and automatic-sprinkler systems. The three-year loan, backed by a corporate guarantee from North Carolina-based VF, carries a 5% annual interest rate—less than one-third the rate he would get from local banks, Mr. Huda said.

Overall, international inspectors estimate that around $400 million will be needed to fix nearly 2,000 Bangladeshi factories producing clothes for leading European and North American retailers.

Bangladeshi government officials and garment manufacturers have repeatedly urged major brands and retailers to do more to help factories pay for upgrades. Multinational apparel companies, which typically shift orders between several countries depending on production costs, have been wary of investing in factories they don’t own.

Source: Wall Street Journal