Cooperative Chaos: Nepal's Financial Turmoil


Regrettably, there is a public outcry against powerbrokers, parliamentarians, and party workers, who are the alleged culprits in this scenario. A struggle persists against this cabal of defaulters at the top, with the victims at the bottom.

Nepal’s history of the cooperative movement did not stir at the grassroots level as it began. The government rather thrust it from the top during 1954–55 under the funding and advisory of the USA. In that sense, it was a donor’s copy-paste movement for unaware and ignorant farming communities after the fall of the Ranas. Its fundamental attraction was the principle of membership drives among the farmer community. Accordingly, some farmers became members for ten rupees a share. That qualified them for a ten-time loan, which is multiplied by multiple shares.

The way it was initiated did not encourage popular participation. I knew some farmers in Morang who had achieved membership thus. However, this system barely lasted for two years before breaking like bubbles in a storm. Those who had borrowed it never knew whether they had it for production or consumption. Now, only government records can confirm if such loans were ever repaid.By 1963, the movement had reinitiated itself under a different name called Sajha. Its pioneer was the statesman and politician Bishwa Bandhu Thapa. There were Sajha Yatayat (passenger buses) and another Sajha Yatayat (goods carrier trucks), all part of a fleet. This system operated passenger buses in Kathmandu as a priority, and the trucks transported goods to Kathmandu from other regions. In addition, some more sajha programmes were in operation, like Sajha Swasthya Sewa (health services), Sajha Bhandar (consumer stores), and Sajha Prakashan. However, Yatayat and Prakashan are still operational.

Second Phase

In the years 1964–65, its second phase emerged. It was a drastically turbulent period in Nepal’s economy under King Mahendra. Especially the agrarian sector had encountered multiple revolutionary campaigns. The king adopted the policy of land reforms and intercepted the legacy of loans the farmers had had from the zamindars, who were the prevailing moneylenders. The next one was Aniwarya Bachat (compulsory savings in terms of food grains), which was for the compulsory deposits of landholders and tillers. Loan redemption was a good idea, but the farmers had no outlets for easy access to loans, as they had so from moneylenders. For an alternative, the government department of cooperatives then registered farmers’ cooperative societies and unions as the qualifying institutional lenders. Such societies and unions borrowed from a new financial agency, Sahakari (cooperative) Bank, as a substitute. Aniwarya Bachat Sansthan (Compulsory Savings Corporation) was also there. However, its capital was formed through food grains deposited by landholders and tillers over 3–4 years. As such, its authorised capital was a total of Rs. 110 million, with its lending procedures. The concern here is mainly cooperative societies and unions in the second phase of cooperatives. 

As stated, Sahakari Bank aimed to lend to farmers for their needs, such as seeds, fertilisers, and agricultural tools. It was the only alternative, although its lending process was complex. Individual farmers could not borrow from it directly but through the cooperative societies or unions to which they belonged. Initially, the government Department of Cooperatives registered such lending agencies. Then their executive body borrowed from the bank to meet the collective needs of farmers. Indeed, these societies and unions were to borrow and then re-lend, which was, in a way, effective for both farmers and agriculture. However, the working and executive committee members of these agencies increasingly pursued personal interests over serving farmers. Additionally, the bank had little coordination with the cooperative department regarding lending procedures. In that regard, the department did nothing beyond formal registration, and the bank lent to them independently. Moreover, individual member borrowers had no financial obligations since their loans required no collateral. Post-lending supervision was also absent, and the bank did not know about the individual borrowers. This led to an increase in delinquent loans becoming bad debt. Subsequently, very few societies or unions at the grassroots level remained active. Upon inspection, the bank discovered that the executive body had either relocated or was out of contact. Loan repayment became a significant challenge. Reports then uncovered clear cases of misappropriation or embezzlement by certain executive members or individuals.

I recall two incidents related to the bank. One was when, as an officer recruit, I wrote about the bank’s incompatible functioning. The piece, entitled ‘Credit to the Farmer,’ was published in ‘The Rising Nepal’ on August 10, 1966, under its first editor, Barun Shamsher Rana. It suggested that moneylenders and the bank should work in partnership, a stance that could benefit farmers before the bank’s services expanded nationwide. The other incident involved societies or unions that became inactive or defunct soon after borrowing. Their executive members either eluded contact or migrated, benefiting only the shrewd individuals. This raised questions about the viability of such cooperative societies and unions, prompting the government to establish a commission panel chaired by Mohan Man Sainju, the joint secretary of the land reforms department. The commission was tasked with conducting field research in eastern and western Nepal. I was part of a team that visited the Gandaki, Dhaulagiri, Bagmati, and Narayani zones, including officers from the land reforms and cooperative departments. The study revealed that borrower societies and unions became defunct after the executive members migrated or eluded.

A government act subsequently transformed the bank into the Agriculture Development Bank. Meanwhile, Sahakari Bank, primarily concerned with repayment, diverted funds to purchase development shares of NIDC, a financial agency that no longer exists. These shares totaled 4.5 million rupees from its issued capital of 5 million. A few years later, after the bank was into agriculture development, I pursued another career. I also believed that loans through cooperatives had become bad debt, benefiting the astute members of the society or union.

The second phase was also a top-down, but not bottom-up, endeavour. Societies and unions existed only on paper. The agrarian sector continued to struggle, and support for farmers was minimal.

Third Phase

This phase was initiated with a bottom-up approach during the '90s, following the new government’s call for financial endeavours under cooperative principles. Initially, middle-level communities operated consumer stores under street signboards, which later functioned as mini-banks, offering commoners higher interest rates than commercial banks.

However, a clear gap emerged within these cooperatives: a class of bottom-up operators became the executive body, while another class became common depositors. Deposits quickly swelled as depositors jumped on the bandwagon for higher interest rates. Before long, reports surfaced of executive members misappropriating funds, striking gold at the expense of others. They became the alleged criminals, and the depositors, the fall guys, were victims of cooperative terrorism.

The apex body, the Rastriya Sahakari Vikas (National Cooperative Development) Board, oversees these cooperatives as a registering authority. It appears to lack other powers, such as supervision and monitoring. Currently, over 31,000 cooperatives with 7.4 million depositors and members face this broad day of robbery. Government records indicate they have devoured $55 billion in cash deposits that vanish like bubbles in a storm. In contrast, the first two phases naively involved innocent and unaware farmers, while this phase marks a notorious history of financial horror.

Since the Jana Andolan in the '90s, such malfunction cases have escalated. Nine investigation committees have been formed, excluding the one in phase II. Recently, the government has implemented measures such as arresting fraudsters and issuing warrants and lookout circulars for those absconding. A commission of parliamentarians is now probing the cases.

Regrettably, there is a public outcry against powerbrokers, parliamentarians, and party workers, who are the alleged culprits in this scenario. A struggle persists against this cabal of defaulters at the top, with the victims at the bottom.

(Baral is a retired lecturer of English.) 


Rameshwar Baral
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