Dhaka: The Asian Development Bank (ADB) will provide $30 million loan to BRAC Bank to finance for construction and upgrading of ready-made garment factories in Bangladesh.

The initiative has been taken as part of the steps to meet globally agreed standards for structural improvements, and worker rights and safety in RMG sector of the country.

To this end, ADB and BRAC Bank have signed a loan agreement, said a press release on Wednesday.

The loan will also be used to build badly needed effluent treatment facilities in the textile and garment industry, as many factories in the country still operate without effluent treatment plants (ETPs).

Without ETPS, the factories are doing widespread water pollution which is particularly damaging in rural areas where communities rely on surface water for washing, bathing, irrigation and fishing.

‘Bangladesh has been taking steps in conjunction with the international community, to make its factories safer and to improve conditions for workers, but there is a substantial cost and a need for long term funding that is not readily available from current sources,’ said Biao Huang, Investment Specialist in ADB’s Private Sector Operations Department.

‘This loan, with a 5-year tenor, will help meet the need for longer term finance currently unavailable from local banks and international capital markets, and will be used exclusively by BRAC Bank to finance socially and environmentally sustainable projects,’ added Huang.

Bangladesh is the world’s second largest exporter of textiles and garments, accounting for over 80 per cent of the country’s merchandise exports in fiscal year 2014, and employs 4.2 million workers.

However, the industry has suffered setbacks after two disasters in recent years-the 2012 Tazreen factory fire and the 2013 Rana Plaza Building Collapse.

In the wake of these events the government entered into a compact with the European Union, the United States, and the International Labour Organization to commit to improvements in building safety, labor rights, and business conduct.

Separate accord and alliance agreements have also been signed by global apparel companies, global and Bangladeshi trade unions, and nongovernment organizations to improve business conduct and worker safety.

Transforming the factories in line with the compact and other agreements, however, requires substantial outlays, with the cost estimated at around $250,000 to $400,000 per factory. Given the lack of long term funding available in Bangladesh, ADB’s loan will enable BRAC Bank to offer longer tenor financing to companies wanting to upgrade and improve structural, safety and social standards at their factories.