Cooperatives – a haven for unscrupulous promoters
Published by Octron on January 18, 2011
A joint inspection by regulatory bodies have found big cooperatives operating in the Kathmandu Valley of making investment in shares of different institutions and real estates, flouting the cooperatives law.
It even unearthed cases of cooperatives providing higher (than announced) deposit rate and charging less lending rate (lower than deposit rate) to the promoters.
A high-level government committee had studied big cooperatives in the Valley and some other cities a few months ago, amid growing complaints against their modus operandi. The committee found that deposits that general savers have in the cooperatives are in high risk.
“Due to weak inspection and supervision, cooperatives are easily flouting law and investing haphazardly in risky sectors, exposing small depositors´ savings to a grave risk,” reads the report prepared by the committee.
The report obtained by Republica shows that Sitapaila Multipurpose Cooperatives, Guna Multipurpose Cooperative, Kantipur Saving and Credit Cooperatives, and Civil Saving and Credit Cooperative have collected mobilized deposits 10 times higher than their share capital amount.
The study also dug out that promoters of Sitapaila Multipurpose Cooperatives and A-One Saving and Credit Cooperatives were receiving higher interest rate compared to lending. Similarly, the promoters and their family members were also found enjoying loan facilities without pledging collateral.
Similarly, Gurans Cooperative was found imposing up to 18 percent interest on loans. Its promoters were found enjoying interest-free loans.
“Promotes in most of the cooperatives were found defaulting on loans despite enjoying loans at zero percent or nominal rates,” said a member of the study team.
Shuva Shree Cooperatives, Kalyan Saving and Credit Cooperative and Civil Saving and Credit Cooperatives are involved in transaction of land and apartments. Civil Saving has invested 93 percent of the total loan portfolio in housing sector. Its involvement in selling apartments goes against the cooperative norms. Similarly, Oriental Saving and Credit Cooperative has invested more than 65 percent of its total loan investment in housing.
Sumeru Saving and Credit Cooperatives, Nawa Kantipur Saving and Credit Cooperatives and Nepal Cooperatives were found handling remittances, violating existing rules. The team found Gorkha Saving and Credit Cooperative involved in transaction of foreign currency.
Similarly, Sitapaila Multipurpose Cooperatives, Sumeru Saving and Credit Cooperatives, Gorkha Saving and Credit Cooperative and A-One Saving and Credit Cooperative were found centralizing their loan investment to the families and relatives of promoters.
The team also found that A-One Saving and Credit Cooperative, Lali Gurans Saving and Credit Cooperative, Gorkha Saving and Credit Cooperatives and Nepal Cooperative were investing in the stock market. A-One Saving and Credit Cooperative, Kantipur Saving and Credit Cooperatives and Nepal Cooperatives were found levying service charge up to 3 percent service of total loan issued.
Similarly, Lali Gurans Cooperatives was found doing banking transaction without seeking permission from the Nepal Rastra Bank — the central monetary authority.
Some saving and credit Cooperatives were found giving extra facilities, including fuel, vehicle and monthly remuneration to their promoters, without seeking approval from the general assembly. Similarly, Gorkha Saving and Credit Cooperative was found opening current accounts instead of saving account for its members.
Likewise, Oriental Saving and Credit Cooperative was found putting 51 percent of the total deposits in fixed account. Nawa Kantipur on the other hand was launching Any Branch Banking Service along with disbursing loan against mortgage of gold.
After finding anomalies in cooperative sector, the Finance Ministry had issued directives to the Department of Cooperatives (DoC) a few months back, suggesting some reform measures. However, DoC — the regulatory authority — has done nothing concrete in this direction.
“We had asked more than 20 big cooperatives to furnish clarification on the irregularities and reform measures to be adopted by them, but only a few of them have responded to our call,” a source at DoC told Republica. “Human resource crunch is hampering our monitoring capacity.”