Cooperative Frauds

Defrauding of cooperatives has become a hot issue in Nepal these days. Thousands of people have lost their money deposited in cooperatives. Misappropriating the depositors’ hard-earned savings is an unashamed flouting of the core principles of cooperative business based on ethical values and practices. Their key objectives are to meet the economic needs of their members and community. The notion of cooperatives evolved to cater goods and services to the people, which the traditional markets fail to offer them. The cooperatives play a significant role in boosting small economies through the collective efforts of community members. This has also been evident in the United Nations Conference on Sustainable Development (Rio+20)’s recognition of the co-operatives in "contributing to social inclusion and poverty reduction, in particular in developing countries.”

In Nepal, thousands of cooperative organisations thrived especially after the 1990 political change that restored liberal political and social order. Around 31,373 cooperatives are operating across the country, with 7.4 million depositors and 2.3 million borrowers. For decades, cooperatives contributed to the national and local economies vibrantly. However, the pitfalls of cooperatives began to surface with its investment in the unproductive and unsolicited sectors. At the same time, many cooperative owners started to swindle the depositors’ money betraying them. Small depositors placed their trust in the cooperatives, thinking that such ventures were beneficial to them in times of need and financial trouble. 

However, in the dearth of effective laws and regulations, nearly Rs. 275 billion have been siphoned off from 357 cooperatives, posing a serious challenge to the government to recover defrauded money and ensure justice for the victims. A special parliamentary investigation committee has disclosed that 40 cooperatives -- including 22 troubled ones and 18 publicly questioned institutions -- have a total liability of Rs. 87.89 billion, with savings deposits amounting to Rs. 71.30 billion, according to a news report published in this daily. The cooperative victims have hit the streets several times, calling for stringent measures to punish the culprits. In a move to refund the depositors’ money, the government set up the National Cooperatives Regulatory Authority last month through an ordinance. This is indeed a right step on the part of the government though uncertainty persists as to when the victims will be able to get their deposits back. 

In the current fiscal year budget, the government has promised the return of small deposits (up to Rs. 500,000). The cooperatives have been accused of haphazardly pouring money into houses, land, shares, hydropower and other sectors. As the investments failed to yield profit, it became difficult to return the savings to the depositors. The experts point out that the government should have instituted a reliable agency, along with the registration bodies, to monitor and regulate the activities of cooperatives. In response to the victims’ pleas, the police have taken legal action against scores of cooperative fraudsters. 

To date, 595 persons have been nabbed in connection with the swindling of the cooperative deposits while 1,922 alleged are still at large. The government should give a sweeping mandate to the newly established authority and provide adequate human and financial resources to Nepal Police to deal with this raging cooperative scams that have left hundreds of thousands of Nepalis in the lurch.