Tackle Problems Facing Cooperatives

Cooperatives are designed to improve the economic status of the people associated with them. Cooperatives basically target those from low-income groups, no matter whether they are living in urban or rural areas. In fact, cooperatives are non-profit-making organisations, their basic thrust being uplifting the economic well-being of people from lower social strata. Viewed from this perspective, cooperatives are social, rather than commercial organisations. 

However, cooperatives in Nepal have been running as commercial organisations. They collect deposits and invest in loans. If they mobilise deposits and invest in credit prudentially, there may be no problem. But when investments are made in loans haphazardly and most of the loans cannot be recovered in time, problems may arise. Cooperatives are member-based organisations. Their collective efforts are required to improve their condition. But in reality, most of the members are not active. In addition, good corporate governance is lacking. There is lack of business plans. The management information system (MIS) and the portfolio management are weak. Owing to these and such other shortcomings, cooperatives have not been able to perform well.

Mushrooming growth

There are more than 32,000 cooperatives scattered throughout the country. Their deposits run into over Rs. 700 billion. The number of cooperatives burgeoned drastically after the restoration of multi-party democracy in the country. Along with other organisations such as NGOs, the number of cooperatives also mushroomed. More and more people were attracted to such organisations after the regime change in 1990, when the Panchayat dispensation was abolished and the multi-party democracy was ushered in. 

The cooperatives are in the soup now. Most of them invest in the real estate and margin lending sectors. With both of these sectors in the doldrums, cooperatives are facing a crisis. Moreover, dishonesty on the part of some cooperatives has produced a kind of domino effect.  As such, almost all the cooperatives are now viewed by the public as frauds. The regulatory bodies are receiving complaints about misconduct on the part of some cooperatives. When promoters of a cooperative take loans themselves or persuade or force the management to give loans to their relatives or friends or acquaintance without adequate collateral or poor-quality collateral and without assessing the financial status of such loan clients, the loans cannot be recovered in time. Sometimes, such loan clients and other clients as well may not repay their loans even if they are financially sound. 

Cooperatives have to maintain at least 15 per cent liquidity. With their money locked in the unproductive sector, some cooperatives are not in a position to return depositors’ money. This particular case has been generalised to such an extent that all the cooperatives seem to be bankrupt in the eyes of the public. 

No doubt, some cooperatives are not running as per the rules and regulations. Their books of account are not transparent. They do not conduct annual general meetings for years. Some cooperatives have failed to settle their outstanding due amounts to banks. There are instances in which cooperatives are blacklisted by the Credit Information Bureau of Nepal (CIB Nepal) for their misconduct. A number of cooperatives have been blacklisted by the CIB Nepal. 

It would be relevant to mention that a probe commission was formed by the government in 2013 to investigate mismanagement in the cooperatives. The commission found the operators of cooperatives taking loans themselves and not repaying the loans for years. According to the commission, as many as 22,170 depositors were yet to receive their deposits of Rs. 7.61 billion, not accounting for the interest on them. The commission found 162 cooperatives problematic and recommended their proper management. The body recommended that the cooperatives be properly monitored, strong laws be formulated to curb haphazard financial and managerial decisions, registration of new cooperatives be stopped, the operators not invest in loans without adequate collateral and all financial transactions be conducted through banks and financial institutions. However, none of the above recommendations have been translated into action. 

As per the Auditor General’s report of 2023, many cooperatives have failed to set up a system to identify suspicious transactions. They have not conducted a detailed study of high and abnormal transactions. However, transactions of over Rs. one million have to be sent to the Financial Information Bureau. The cooperatives are suspected of collecting what is known as black money. With the money laundering provisions tightened in the banking sector, it is suspected that black money may have flooded the cooperatives. 

Malpractices

The cooperatives are under the jurisdictions of the Department of Cooperatives, provincial governments and local governments in accordance with the Cooperative Act, 2017. Despite this provision, the cooperatives have not been properly monitored. There are malpractices in some cooperatives. It is not that all the cooperatives are bad. But owing to the generalisation that all the cooperatives are untrustworthy, the people have lost their faith in them. In fact, whenever there are problems in the banking sector, the cooperatives cannot remain unaffected. The recession in the banking sector also affects the cooperatives. Some people have lost their faith in the banking sector, too.

Anyway, the cooperatives are considered one of the pillars of the national economy. They have the potential to uplift the standards of living of the rural people. They can be taken as a means of livelihood for the low-income rural people as they can engage in occupations with the loans provide by such organisations. Interest charged on such loans is lower than that on the loans taken from the money-lenders. So the government and the relevant regulatory bodies should take concrete steps to promote and strengthen the cooperatives.   

(Maharjan has been regularly writing on contemporary issues for this daily since 2000.)