Over 500 cooperatives on the verge of failure due to lack of oversight

More than 500 savings and credit cooperatives across the country are not in a position to return depositors’ money, say cooperative victims.

Harish Chandra Shrestha, coordinator of the National Campaign for the Protection of Cooperative Depositors, said these cooperatives have embezzled hard-earned savings worth Rs 65bn from hundreds and thousands of depositors.

According to the Department of Cooperatives, there are more than 32,000 cooperative organizations across the country. These organizations have mobilized deposits from 7.3 million members and have a combined share capital of Rs 94bn. Likewise, they have mobilized Rs 478bn in deposits and invested Rs 426bn in loans.

“Many of those who embezzled people’s money parked in cooperatives are now affiliated with different political parties. Some have fled the country,” Shrestha said. “Most of the promoters of cooperatives are affiliated with one party or another. They become lawmakers and formulate laws that suit them. That is why the voices of cooperative victims go unheard.”

16 cooperatives ‘troubled’, Rs 13.5bn at risk

Dozens of cooperatives across the country have run into trouble. The government has declared 16 of them as ‘troubled’ institutions. Deposits worth Rs 13.14bn of 272 members are stuck in 15 out of these 16 cooperatives, according to the department.

The government, for the first time in 2018, declared 19 cooperatives—Standard, Standard Multipurpose, Kuber, Pacific, Prabhu, Chartered, Consumer, Kohinoor Hill, and Vegas—as troubled. Societal, Lunibha, Oriental, Pashupati, Tulsi Multipurpose, Shiva Shikhar, and Hamro Naya Krishi were added to the list later on. Of them, Oriental alone has mobilized Rs 3.19bn from 259 members. More than 600 depositors of Oriental have complained to the government, stating that they deposited the money for apartment units developed by Oriental chairman Sudhir Basnet.

The government declared Oriental ‘troubled’ a year ago.

Cooperative institutions that are unable to conduct financial transactions are declared as ‘troubled’ on the recommendation of the department.

Kashi Raj Dahal, chairman of the Troubled Cooperatives Management Committee, said cooperatives doing financial transactions and those based in urban areas have run into trouble. “About 500 cooperatives are in a situation of trouble. Of them, 145 come under the ambit of the federal government and 16 of them have been declared as ‘troubled’ institutions,” he added.

According to Dahal, the committee has already cleared all the liabilities of three ‘troubled’ cooperatives—Standard Multipurpose, Kuber, and Chartered. Likewise, the committee is in the process of clearing liabilities of two more cooperatives—Societal and Lunibha, he added. “As for other troubled cooperatives, the committee is searching for assets of their promoters and lenders. Frozen assets of these people are in the process of being auctioned off,” Dahal said.

According to the department, more cooperatives are being added to the list of troubled institutions. “We are investigating the financial transactions of six cooperatives. We will seek clarification from the promoters after the study is complete. If their clarification is not satisfactory, we will declare them as troubled,” Tol Raj Upadhyaya, the information officer of the department, said.

Why did cooperatives fail?

The committee has said that most of the cooperatives that have been declared as troubled institutions were facing a shortage of resources, means, and workforce. Many promoters are found to have used money collected as deposits to buy fixed assets and pledging them as collateral to take bank loans.

“Many cooperatives are found to have violated the norms. Some promoters lacked the expertise to run institutions that mobilize people’s money,” Dahal said. “Some promoters had the bad intention of misusing depositors’ money for personal gains. Those misusing people’s money must be brought to book.”

Dahal also said promoters got free rein over cooperatives due to lack of effective monitoring and regulation by state agencies.

According to the committee, it is facing difficulty in clearing liabilities of troubled cooperatives as assets of promoters are already frozen by the court after investigation by the Central Investigation Bureau of Nepal Police.

Committee chair Dahal said there is a need to give direction to state agencies to facilitate unfreezing of assets of cooperative promoters so that their liabilities can be settled.

Coordinator of the campaign Shrestha said the government did nothing even though a single individual went on to open as many as six or seven cooperatives. “Their motive was never questioned. This is mainly due to a lapse in regulation by state agencies,” Shrestha said. “The lack of monitoring of cooperatives conducting transactions worth billions of rupees speaks volumes.”