Allowing ‘peaceful death’ to ailing RMG industries

The government is going to allow 133 ailing readymade garment (RMG) factories to be liquidated with relief from the liability of bank loans in arrears, with the move being indicative of delivering a "peaceful death with no regrets" to them. 

The commerce ministry has called an inter-ministerial meeting on Monday to finalise the decision a year after the finance ministry and the Bangladesh Bank showed a positive attitude to a BGMEA proposal on the issue.

Many of these industries, which spearheaded the country's biggest export earning sector – RMG, have been in bad shape for many years, with some even folding permanently.

Owners of these industries, who failed to repay bank loans due to a lack of production and export, have been facing lawsuits in different bankruptcy and money loan courts for a long time.

Last year, Rubana Huq, president of Bangladesh Garment Manufacturers and Exporters Association (BGMEA), appealed to Finance Minister AHM Mustafa Kamal to specially consider writing off the principal loans, interest and bank costs of these ailing factories.

The application mentioned these factories have been sick due to various unmanageable reasons, including political instability and natural calamities.

In response to the BGMEA request, the finance ministry then sought the Bangladesh Bank's opinion.

The central bank informed the ministry that it had obtained loan information about 131 out of the 133 industries from banks.

In order to relieve these 131 factories of all liabilities, the government would have to repay more than Tk686 crore to banks. Of the figure, the principal loan amount is over Tk552 crore.

A decision will be taken at a meeting to be held on October 5 with Commerce Secretary Mohammad Zafar Uddin in the chair, said a commerce ministry official.

"I can only say the situation of these factories is tragic. They are facing cases and harassment all the time," said BGMEA President Rubana Huq.

In the absence of an exit policy for factories that cannot survive, the burden of bankruptcy for the small factories is unbearable. These factories need to be bailed out with active assistance and their outstanding needs an immediate closure, she added.

The owners started a move to avail of a waiver on bank loans and interest for the sick industry in the garment sector back in 1997.

At that time, the two former presidents of BGMEA, late Annisul Huq and Shafiul Islam Mohiuddin, first requested the then finance minister Shah AMS Kibria to waive the interest of 17 sick industries. The list later grew to 1,900 in 2005.

At the BGMEA request, the commerce ministry formed a 7-member "Committee on Reopening Sick Garments."

The committee prepared a report after holding 11 meetings and inspecting the factories, recommending the reopening of 1,900 factories in three categories on short-term, medium-term and long-term bases.

The commerce ministry forwarded the report to the finance ministry in August 2005 with recommendations to raise funds for the reopening of these factories.

Two key recommendations in the report was: raise funds to relaunch the ailing factories and withdraw the cases filed by the banks under the Finance and Bankruptcy Court Act.

In 2006, the BGMEA requested the Finance Division to provide policy and legal assistance to 270 out of these 1,900 factories.

In 2010, the Financial Institutions Division (FID) sent a letter to the Bangladesh Bank and commercial banks, instructing them to write off the loans of these factories.

Later, the BGMEA included 9 more factories on the list and made the same request to the Finance Division. In reply to the request, the FID again issued similar instructions to the banks in January 2012.

In the letter, the FID said it was not an open-ended facility. Therefore, the debt write-off facility would not be granted to sick industries any more.

In his budget speech for the 2013-14 fiscal year, the then finance minister Abul Maal Abdul Muhith proposed loan write-off facilities for 279 ailing factories.

Shafiul Islam Mohiuddin, former president of the BGMEA, told The Business Standard that the government at that time waived the interest on loans of ailing factories and transferred the loan accounts to blocked accounts.

Taking that facility, many sick industry owners paid their debts. But the financial situation of the owners of 133 factories is so bad that they could not do it, he also said.

"None of these factory owners are fraudsters like Hallmark and Bismillah Group. They are all from decent families and could not do business due to various reasons, including hartals and arson attacks [during different political unrests]."

Even, many of these factories have already died but the bank cases are still going on in their names, he added.