Proparco has just allocated a USD 16m credit line to United Commercial Bank Ltd (UCBL), Bangladesh’s second largest private bank. These foreign currency resources with a 6-year maturity will be used to finance the construction of a garment factory compliant with international environmental and social (E&S) standards by one of the country’s main textile players: DIRD Group. The building’s facilities, worth a total of over USD 80m, will reduce energy consumption by 20% and water consumption by 50%, while offering better working conditions for employees.
Key activity for Bangladesh but under supervision
In Bangladesh, the textile and clothing sector accounts for 80% of exports (USD 21.5bn in 2013) and directly employs 4 million people, mainly low-skilled women. The players in this industry consequently carry quite some weight in the local economy (they generate 15% of GDP). However, local authorities and the international community have high expectations from them in terms of labor law and safety, and respect for the environment. In 2013, the collapse of garment factories (Rana Plaza) highlighted the neglect of international standards in Bangladesh’s factories. The country’s partners have since been taking action to improve practices. Development finance institutions (DFIs), such as the International Finance Corporation (IFC) and Proparco, have implemented financial tools to upgrade the E&S standards of garment factories.
Credits conditional upon best practices
For PROPARCO, financing players in clothing and textiles, via dedicated bank credit lines, is an effective way of having an impact on practices in the sector. Indeed, the financing agreements impose the implementation of E&S actions by the clients of partner banks. In order to monitor these commitments, since 2011, UCBL has been implementing a policy to assess and manage the environmental risks related to its clients’ activities. When it established its partnership with Proparco, it undertook to bring this approach into line with international standards.
For its part, the financial beneficiary of the credit line, DIRD Group, stands out for its E&S commitments. For example, it has been certified “Gold Certificate Compliant” by the independent group Worldwide Responsible Accredited Production. It has also received the LEED Gold certification, one of the international references for high-performance sustainable construction, for the factory project cofinanced by Proparco. The factory was also audited and approved in the context of the Bangladesh Accord, a legally binding agreement between the originators in the sector, trade unions and the International Labour Organization (ILO), which allows safety controls to be conducted in factories and staff to be trained.
This credit line is Proparco’s second operation to support financing for responsible private players in the clothing and textile sector. Indeed, in late 2015, Proparco allocated a EUR 15m credit line to the Bangladeshi Eastern Bank Limited to finance the projects of local textile companies.
Each of these projects was selected beforehand and was subject to an audit, financed in the form of technical assistance, on the E&S and safety aspects, which led to the definition of a corrective action plan to be implemented. The payment of Proparco’s financing was conditional upon the signing of these action plans by the bank’s clients.
While this approach cannot be systematic for all Proparco’s support for financial systems in developing and emerging countries, it does, however, demonstrate the capacity of PROPARCO’s teams to impose compliance with international E&S standards, but also governance standards, on its financial partners and their clients.
UCBL is one of the largest private banks in Bangladesh in terms of assets. It was set up in 1983 and at the end of 2015 had a network of 158 branches and a headcount of over 3,800 employees. At the end of 2015, this universal bank a consolidated balance sheet of USD 3.8bn (against USD 2bn in 2011). Its growth strategy is based on services to SMEs, as well as to textile companies and for green financing projects.