Linkage industries for garments sector
Saturday, 18 October 2008
WHEN Bangladesh's export-oriented ready-made garments (RMG) industry was emerging in the late seventies, no one was sure of its future. But the banks of the country were unhesitant to lend to the RMG entrepreneurs. A great success followed for the industry, the banks and the country. From a handful of garment factories in the mid seventies, now there are thousands of them. Most of the owners did well by deciding to invest in the sector.
The banks sponsored entrepreneurs. By providing initial capital and later working capital, big amounts on credit, the banks also made good profit. From many projects in other sectors, however, the banks did not get similar good returns out of their lendings. In many cases, the loans turned classified long ago and have been adding to their liabilities.
The garments have been a different story. The banks' lendings to the garments industries generally proved to be a success. Since a modest start in the mid seventies there has been no looking back for the RMG sector. The Bangladeshi apparel export grew on average by 22 per cent each year of the present decade.
The banks recovered the loans they extended to RMG industries, though the interest rate was high. The banks did good business with the sector.
The success story with the first generation garment entrepreneurs of the seventies, eighties and nineties could encourage the banks to lend to the second generation of the garments industrialists. A large opportunity awaits entrepreneurs keen to invest in the backward linkage industries needed by the RMG sector. Investment in backward linkages would be as rewarding, if not more.
To supports its RMG sector, Bangladesh now needs 148 spinning mills, each with 25,000 spindles, 295 weaving and 280 dyeing cum finishing units. Obviously, it would need massive investments to set them up. It would also mean many new jobs and stepped-up economic activities. But ironically, the desired level of investments are not being made. Even a single spinning or a composite mill requires a large investment to set up. A local bank could, in the past, easily finance even a dozen medium to large RMG industries in a short time. A bank's resource base allowed such lending without much thought.
But the spinning or composite mills are another matter. However, the banks can overcome the problem by forming consortiums among themselves to pool the resources for lending to the backward linkage industries for the RMG sector. The entrepreneurs, potential and actual, do need to be encouraged through pro-active policy supports to set up such linkage industries.
Junaid Bakht
Rankin Street
Wari, Dhaka
The banks sponsored entrepreneurs. By providing initial capital and later working capital, big amounts on credit, the banks also made good profit. From many projects in other sectors, however, the banks did not get similar good returns out of their lendings. In many cases, the loans turned classified long ago and have been adding to their liabilities.
The garments have been a different story. The banks' lendings to the garments industries generally proved to be a success. Since a modest start in the mid seventies there has been no looking back for the RMG sector. The Bangladeshi apparel export grew on average by 22 per cent each year of the present decade.
The banks recovered the loans they extended to RMG industries, though the interest rate was high. The banks did good business with the sector.
The success story with the first generation garment entrepreneurs of the seventies, eighties and nineties could encourage the banks to lend to the second generation of the garments industrialists. A large opportunity awaits entrepreneurs keen to invest in the backward linkage industries needed by the RMG sector. Investment in backward linkages would be as rewarding, if not more.
To supports its RMG sector, Bangladesh now needs 148 spinning mills, each with 25,000 spindles, 295 weaving and 280 dyeing cum finishing units. Obviously, it would need massive investments to set them up. It would also mean many new jobs and stepped-up economic activities. But ironically, the desired level of investments are not being made. Even a single spinning or a composite mill requires a large investment to set up. A local bank could, in the past, easily finance even a dozen medium to large RMG industries in a short time. A bank's resource base allowed such lending without much thought.
But the spinning or composite mills are another matter. However, the banks can overcome the problem by forming consortiums among themselves to pool the resources for lending to the backward linkage industries for the RMG sector. The entrepreneurs, potential and actual, do need to be encouraged through pro-active policy supports to set up such linkage industries.
Junaid Bakht
Rankin Street
Wari, Dhaka