Wal-Mart to give $50m loan to BD RMG units
FE Team | Published: August 31, 2013 00:00:00 | Updated: February 01, 2018 00:00:00
FE Report
Wal-Mart Stores Inc. Thursday announced that it would provide up to $50 million loan to Bangladeshi factory owners, who would be joining global retailers in the drive for improving safety standards in the country's disaster-prone garment industry, according to some news agencies.
Global retailers in Europe and North America, including the United States, have taken separate initiatives to improve workplace safety of Bangladeshi RMG units, following the Rana Plaza collapse that killed 1,129 workers and maimed many in April.
The incident occurred after a fire incident that perished another 112 workers at Tazreen Fashion in November last year.
The factory was making Wal-Mart's Faded Glory clothing without the retailer's consent. Since then, Wal-Mart's efforts included a zero-tolerance policy for unauthorised sourcing.
The Wal-Mart loan will carry low interest rate and will be disbursed following the Bangladesh Bank's approval.
According to the foreign exchange policy, the central bank needs to approve disbursement of any foreign currency loan. Details about lending rates also need to be finalised.
The announcement was made on a call (tele-conference) with investors and shareholders of Wal-Mart at the company's headquarters in Bentonville, Arkansas Thursday.
The loan will be dispatched from a fund of more than $100 million, committed in July by a group of North American companies.
The group of retailers, called the Alliance for Bangladesh Worker Safety (ABWS), pledged to set safety standards by October and refused to buy from factories deemed unsafe.
Gap Inc, JC Penney Co and Sears Holdings Corp Li & Fung Ltd, the global outsourcer that supplies to Wal-Mart, are also among the 17 signatories of ABWS.
ABWS is separated from a European group, formed in May combining nearly 80 retailers and trade union groups, to be known as the Accord on Fire and Building Safety in Bangladesh (AFBSB).
AFBSB was signed, among others, by leading European retailers like Hennes & Mauritz AB (HMB) and Inditex SA, two largest clothing retailers of the continent, who pledged at least $60 million over five years to monitor safety in Bangladesh plants.
The North American ABWS plan has been criticised by different groups of trade unions, human rights activists and investors. They think the European-led plan, including legally binding arbitration, is stronger.
Meanwhile, Wal-Mart is in talks with the Bangladesh Bank, as the company is trying to figure out the best way to fund the steps for improving factory safety - whether through loans, earlier payments for shipments or other methods.
Wal-Mart Global Chief Compliance Officer Jay Jorgensen said these at the meeting of investors and analysts Thursday.
The company has become more vocal about its allies' activities in Bangladesh over the past several months, including posting a list of banned factories online in May. It banned more than 250 local factories for not having adequate safety compliance.
Wal-Mart is considering several options, like paying factories for orders more promptly; paying for orders even before products are delivered, either through loan or payment; or having a bank issue loan with the retailer standing behind it as a credit guarantor in order to keep the interest rate lower, Jorgensen said.
Wal-Mart also started thorough inspections of the roughly 280 Bangladeshi factories it gets goods from.
"We're not talking about millions of dollars per factory. We're talking about tens of thousands of dollars per factory for the reports that I've seen," he said.
The North American alliance said in July that some companies offered more than $100 million in loan and access to capital to help the factories they do business with make necessary safety improvements.
Gap said in October it would provide loan up to $20 million to vendors for safety improvements.
The Interfaith Center on Corporate Responsibility (ICCR), a group of faith-based and socially responsible investors, wants Wal-Mart and other retailers to join the European accord.
ICCR's senior programme director Reverend David Schilling said the initiative could have the highest impact, especially if more companies work together.
"There's a greater likelihood of success, if there's a multi-stakeholder collaborative process," said Schilling, adding that having funds for loans is a good step in the overall efforts.
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