Many cooperatives are found to have fallen in financial problems mainly due to issuing loans rampantly to the near and dear ones of their board members.
Kashi Raj Dahal, former chairperson of the Problematic Cooperative Management Committee, said a number of cooperatives faced problems after the executives provided loans to their close family members. Giving an instance, Dahal said the chairperson of one of the cooperatives that they had cross-checked was found to have issued loans of up to Rs 5 billion without any collateral.
“In one of such cases, the chairperson of a cooperative provided a huge amount of loans just on the backup of the guarantee of his wife,” said Dahal, speaking at a program organized by Nepal Federation of Savings and Credit Cooperative Unions (NEFSCUN). He added that the problems also cropped up in the cooperative sector after the government issued excessive operating licenses without carrying out proper scrutiny.
Dahal stressed on the effective role of the account supervisory committee to prevent cooperatives from facing financial problems. According to him, members of a single family are found assuming positions of both board members and account supervisory committees in a number of problematic cooperatives. “If the committee works responsibly, it will minimize around 80 percent of the problems of cooperatives,” Dahal added.
Of late, a large number of cooperatives engaged in banking business have fallen into crisis due to their excessive exposure to the unproductive sectors, including real estates. Hundreds of cooperatives have been accused to have swindled more than Rs 100 billion of deposits of their members. However, the government so far has declared only over a dozen of cooperatives as problematic.
Dahal said weak monitoring after the government delegated the authority of cross inspection of cooperatives to sub-national governments was one of the causes behind the crisis in the sector. “Although the Cooperative Act 2017 has envisioned establishing a credit recovery tribunal, credit information center and deposit and credit guarantee fund, they have not been materialized even in seven years of the enactment of the law,” Dahal said.
Pitambar Ghimire, registrar of the Department of Cooperatives, said many cooperatives are found to have focused only on collecting deposits in larger amounts. “However, they lack proper plans for mobilizing the collected deposits effectively,” said Ghimire.
Former Finance Minister Yubaraj Khatiwada sought the need for setting up a second tier regulator in cooperatives to resolve the problems seen in the segment.
