The unprecedented challenge that COVID-19 outbreak has posed to export-oriented sectors of Bangladesh, especially the apparel manufacturing industry, has led the Government to roll out a Taka 50 billion coronavirus bailout fund in the form of bank loans to help the entrepreneurs pay the workers’ wages.
Prime Minister Sheikh Hasina on March 25 rolled out the economic bailout package with almost all of the funds going to the readymade garment industry that earns around US $ 34 billion annually, more than 80 per cent of Bangladesh’s total export earnings. The loans carrying a 2 per cent interest rate – which as per Finance Minister AHM Mustafa Kamal in reality is the service charge for the banks to distribute and collect repayments – will be repayable in two years with a grace period of six months.
Following the Government’s move, the Bangladesh Bank has asked exporters to apply for loans from stimulus package immediately. Export-oriented industries will have to apply for loans immediately if they want to get funds from the Taka 5,000 crore stimulus package to pay wages to workers, said the central bank as it published the terms and conditions of the package. As part of the package the owners of the export-oriented industries, which will be allowed to enjoy the loans, will have to pay back the fund within two years.
Exporters will have to pay back the loans in 18 monthly instalments from January 2021 to June 2022. The central bank will realise the amount by deducting funds from the lenders’ current account with the Bangladesh Bank. However, if the borrowers fail to pay back the loans on time, they will face 2 per cent penal interest.
Exporters are eligible to take the loans to pay wages for three months from April to June. The central bank will deposit the funds with the commercial banks in three phases over the next three months. The funds will be paid into the banks’ accounts on the last working day of the month, according to the central bank notice.
Exporters will get loans equivalent to the average wage amounts of three months from December to February. As per the guideline, factory owners would have to submit the salary sheets of workers from December to February of 2019, the list of workers and their banking or mobile banking accounts to the banks. Once the verification is complete, banks will disburse the salaries to the workers’ mobile banking or bank accounts.
Factories that export at least 80 per cent of their products are eligible for the loans. Active factories that paid salaries and wages to workers from December to February would also be considered. The exporters will have to obtain certification from their respective trade bodies to enjoy the loans. For instance, a readymade garment factory will have to take the letter from the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) or the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) and the letter has to be signed by the President and the General Secretary of the concerned association, the central bank explained.
While it is a very encouraging move by the Government, it seems there are some shortcomings and hurdles to it.
The MFS/bank account clause
Only 9 per cent garment factories pay wages to workers through mobile financial services (MFS) and 4 per cent through banks, according to a new study, whose findings highlights the difficulty to digitally pay 4.1 million apparel workers overnight.
As many as 76 per cent garment factories pay wages to workers through cash, while 11 per cent disburse salaries through multiple models, a survey of the BGMEA revealed. The apex garment makers’ body conducted the survey to know the payment modes used by factory owners as the factory management has been preparing MFS accounts for workers to submit to the banks. The survey was conducted among 160 factories, which employ 225,710 workers. Of the workers, 101,379, or 45 per cent of the workers surveyed, have MFS accounts. They use bKash, Rocket and similar kinds of MFS accounts.
“Using MFS, 1 per cent of the surveyed factories pay salaries to employees and 9 per cent factories pay wages to workers. This is insignificant,” the study underlined.
In Bangladesh, garment workers are grouped in seven grades. Wages are given to the graded workers and the salary to the non-graded employees, such as freshers and trainees. Around 147,111 workers, or 65 per cent of the total, have national identification (NID) cards.
Some factories have reported that the workers who were not able to provide NID had submitted birth certificates. This is a clear indication that NID information must be obtained for all workers of a factory to ensure proper background verification, said the study. Since not all workers and employees possess a smartphone, it might get in the way of going for 100 per cent MFS coverage outright. Besides, there are a good number of workers who are not registered with the workers’ database of the BGMEA.
The survey, thus, called for making workers’ database registration mandatory and uploading the data within the next 30 days, or by May 10. Simultaneously, the BGMEA’s e-wallet should have to be rolled out as well. The survey, thus, asked the BGMEA to direct its members to collect the NID of workers and verify them as well.
“MFS is not a choice for us any longer. Rather it is mandatory to ensure transparency of the sector. Moreover, through a bank account or MFS, we could also save the hassle of workers coming to factories for salary. The sector does not have anything to hide or shy away from.” – Rubana Huq, BGMEA President
The time taken to complete the process, however, could be a big challenge! The trade bodies (BGMEA, BKMEA) are working on it though.
A joint statement recently issued by BGMEA and BKMEA said the apparel factories have started opening mobile banking accounts for their workers on 4 April, when the lockdown had been scheduled to be off but got extended as coronavirus cases continued to surge.
The BGMEA and the BKMEA said they have so far opened Nagad accounts for 85,000 workers, Rocket for 160,000 and bKash for 360,000.
Is Taka 50 billion sufficient?
As per the BGMEA, its member factories pay around Taka 4,000 crore in wages every month. Then, there are the member factories of the BKMEA as well.
According to the sector people, BGMEA member factories employ around 40 lakh workers and other staff, while factories belonging to BKMEA employ another nearly 12 lakh people. Besides, there are other export-oriented sectors as well like ceramics, leather and pharmaceuticals. and all employing a substantial workforce.
“The Taka 50 billion soft loan that the Government has provided has too many strings attached to it as prerequisites and I am not sure how many would be able to avail the loan and benefit from it.” – Rezwan Selim, Director, Softex
Rezwan is also not very happy with the Government’s handling of the current situation, which he fears could lead to many more factories shutting down for good by August, thereby rendering hundreds of garment workers to lose their source of livelihood.
In such a scenario, social unrest cannot be ruled out, Rezwan felt. In the current state of affairs, Rezwan would rather prefer to pay his workers and wind up business for good.
“We have managed to pay the workers for March and also April based on the temporary layoff rule. Supporting the workers at this juncture is very crucial and we are completely responsible for the people working for us.” – Monabber Ahmed, Director, Anowara Grou
However, the countrywide shutdown, extended further till 5 May considering the current situation, which in tandem with the buyers asking for delayed shipments/reduction in order sizes and offering deferred payment options seeking a payment period of 90 to 120 days, could further worsen the situation of the garment manufacturing sector, felt Manobber.
The Director of Anowara is thus for policy support from the Government for the workers being laid off as well as those who have their units shut down because of COVID-19.
Monabber cited one such initiative of the Canadian Government, the country where he is currently stuck due to the travel restrictions put forth by the Governments of various countries, for its workers.
Says Ashish Sharma, Director of Threadmill Clothing Private Limited, an international buying house that ships a host of apparel items to its global market segmented into Canada, France, Dubai, Australia and the UK, “The exporters will ask for more money from the Government for paying salaries as the next month is also Eid.”
The criteria put forth by the Government to avail of the Taka 50 billion bailout package, which involves issues like the financial stability of the company in the past 3 months and other clauses would make things more difficult for the garment makers, Ashish added.
“If the Government considers the stimulus package as a loan, it will not serve the real purpose,” said Shahidul Haque Mukul, Managing Director, Adams Apparels, adding, “The factory owners are already in trouble because of the coronavirus, so they will not be able to take the burden of loans. The conditions should be relaxed.”
Many also felt that the 18-month repayment period is bit too short and should be extended to 10 years with one-year moratorium on repayment.
What about the supporting sectors?
The garment accessories makers have appealed to the Government to include them as beneficiaries of the coronavirus package or allocate a separate fund to help them overcome the present situation.
Financial crisis of RMG sector has affected accessories and packaging sector equally, felt Md Abdul Kader Khan, the President of the Bangladesh Garment Accessories and Packaging Manufacturers and Exporters Association (BGAPMEA). “With buyers’ cancellation or holding up readymade garment (RMG) export orders amid the coronavirus outbreak, RMG exporters are also doing the same with accessories and packaging goods orders,” said Abdul.
He further noted that the accessories and packaging sector is one of the main export-oriented sectors that is supporting other export sectors to produce their finished products.
Considering the viewpoints shared by the stakeholders, the bailout package of Taka 50 billion though seems inadequate; the Government apparently is open to other measures as well. Finance Minister AHM Mustafa Kamal, in a recent media interaction, underlined that more short-term, mid-term and long-term measures would be taken to support all the industries that have been affected by the virus pandemic.
“Once the crisis is over, we will take necessary steps so that the affected businesses can return to their pre-crisis level. No sector would be left out,” assured the Finance Minister to dispel fears of the entrepreneurs.