Olaf Schmid

VF Corp. and the International Finance Corporation have distributed the first round to three garment factories for fire and building safety improvements.

DHAKA, Bangladesh — VF Corp. and the International Finance Corp. said Monday they have distributed the first round of $10 million in loans to three Bangladeshi garment factories for fire- and building-safety improvements.

This story first appeared in the December 9, 2014 issue of WWD. Subscribe Today.

As part of the financing arrangement with the IFC, VF said it is providing a full corporate guarantee for up to $10 million that the IFC and its partner, BRAC Bank Ltd., lend to its contract garment factories in Bangladesh undergoing rigorous inspections and remediation plans in the wake of two tragedies that killed more than 1,240 workers.

IFC disbursed a total of $1.3 million in loan payments to the three factories: Arunima Sportswear Ltd., Olio Apparels Ltd. and Radisson Apparel Ltd. The factory owners will use the loans to invest in costly safety upgrades, such as installing fire sprinklers, fire doors and detection systems, including other repairs and safety precautions.

VF and IFC said they are granting loans to VF’s supplier factories in the range of $100,000 to $1 million. The lending program is part of VF’s effort to help suppliers meet stringent safety standards and improve labor and working conditions.

“Providing these loans to help supplier factories fund the necessary improvements is another positive step forward in VF’s efforts to ensure the safety of people making products in Bangladesh,” said Tom Glaser, VF’s president of supply chain.

The financing arrangement from VF and IFC is aimed at helping factory owners in Bangladesh adhere to stringent standards laid out by the Alliance for Bangladesh Worker Safety, in which VF and 25 other companies, including Wal-Mart Stores Inc., Gap Inc. and Target Corp., participate.

“The apparel industry has provided employment and reduced poverty for millions of people in Bangladesh,” said Sergio Pimenta, IFC director for manufacturing, agribusiness and services. “This financing model, which we think could work well for other buyers and suppliers, will help improve work conditions and facilitate growth and development.”

“It’s a bold move,” said Olaf Schmidt, global head of tourism, retail and property for IFC, who met with reporters in Dhaka to share details of the program. “Companies will normally guarantee money for a subsidiary, but it’s rare to do this for a company in another country, which is a supplier. At the same time, it will allow the implementation of the action plan quickly.”

Schmidt said one key factor in determining which company provided the aid was that it needed to have a strong balance sheet, which VF obviously does. “The conceptual idea here is that a buyer who is committed to helping improve the safety of its suppliers and is willing to step forward a little bit — and when I say a ‘little bit’ I’m not referring to the billions of dollars that are exported — but it is in the millions for these buyers who are willing to step up and provide the funding very quickly, very efficiently at low cost. That’s what we’re looking to do more,” he said.

Explaining that the accord has been looking at various ways to help suppliers, Rob Wayss, executive director of Bangladesh operations for the accord, said it is in talks with IFC for funding for 10 brands and had taken several initiatives, including Webinars with IFC for the same purpose.

The IFC has sponsored other projects in Bangladesh, including the Better Work Program in collaboration with the International Labor Organization, which was launched in 2013.

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