Cooperative Crisis in Nepal as Illegal Investments Lead to Savings Loss for Members

Dhangadhi: Co-operatives who have invested in real estate, private companies and shares against the law have started to face crisis. The Cooperative Act 2074 BS prohibits cooperatives from investing in real estate and private companies. However, due to lack of effective monitoring, the cooperative directors have invested the deposits collected from the members in areas such as real estate, shares, etc., which are prohibited by law. Those institutions have not been able to return even the savings.

Shiv Shikhar Multi-Purpose Cooperative Society, which has its head office at Kaushaltar in Bhaktapur, which has not been able to return the money to the savers, has been found to have invested the savings collected from its members in illegal sectors. It has been found that Shivsikhar, who has collected savings of Rs. 10.5 arbas from members, has invested only Rs. 1.9 arbas in loans to members. The Department of Cooperatives said that the remaining Rs. 8.6 arbas were invested by opening sister companies in the name of Shikhar Organization.

The organization has opened department stores in different places of the country under the name of Shikhar Mart and has also invested in real estate. The cooperative has collected only Rs. 1.5 arbas from Far West. By establishing branch offices in Mahendranagar in Kanchanpur, Dhangadhi in Kailali and Attariya and Dadeldhura, the common people here have deposited savings in the cooperative, but now there is a problem in getting the savings back.

In Section 50 of the Cooperative Act 2074 BS, it is mentioned that cooperatives should deal with savings and loans by focusing on members. In sub-section 1 of the said section 50, there is a provision that a cooperative society can only accept the savings of its members and give loans only to the members.

In sub-section 6 of section 50, the cooperative organization shall invest the savings money among its members, invest in loans, buy bonds issued by the Government of Nepal or treasury bills issued by the Nepal Rastra Bank, purchase real estate, build infrastructure, invest in business, share of a firm or company or any bank (except the cooperative bank). There is a provision that it cannot be used for purchase or other purposes.

Stakeholders say that cooperative organizations have invested in private companies including real estate for the purpose of earning more profit and the problem has arisen because the regulator turned a blind eye to this work. The chief executive officer of a cooperative said, "Even though the regulatory body did not see the problem, now the problem has appeared." Tolraj Upadhyay, the spokesman of the cooperative department, which is responsible for the implementation of the law, argues that the department does not have enough manpower to monitor the cooperative regularly.

According to the provisions of the constitution, the government has also given the authority from cooperative registration to regulation to the local level and the state government. Because the state and local levels are unable to regulate the cooperatives, it has become even more chaotic. Although it is mentioned in the Cooperatives Act that the Nepal Rastra Bank can monitor cooperatives that have a turnover of more than Rs. 50 crore, it has not yet been implemented. After questions were raised that the institutional governance in cooperatives is weak and there is a risk of money laundering, the government has proposed to amend the Cooperatives Act and the Nepal Rastra Bank Act so that no savings of more than Rs. 25 lak per person can be made and the Rastra Bank will monitor the cooperatives whose turnover is over Rs. 50 crore.