Depositors of big cooperatives at risk

The financial health of big cooperatives in the country has been deteriorating by the day due to the lack of a regulation and their investment against the norms of cooperatives.

About two dozen savings and credit cooperatives are facing a liquidity crisis, and the number is growing because of their failure in managing deposits and also due to over exposure to the realty sector.

Liquidity crisis has been seen in 23 big cooperatives due to the irrational use of money, said an officer at the Department of Cooperatives. "Deposits worth more than Rs 11 billion are at risk," the officer said.

Cooperatives that invested more than 40 per cent in land and housing have suffered due to the slowdown in the real estate business which began three years back.

The situation has worsened as there is not regulatory authority for cooperatives. "Even the central bank has withdrawn its staff who had been facilitating the monitoring of financial transactions of big cooperatives two weeks back," said coordinator of the department's team Upendra Bahadur Dhungana.

The central bank had been supporting the Department of Cooperatives in monitoring 133 big cooperatives since 2009. Some of the big cooperatives have annual transactions worth Rs 50 million.

According to Dhungana, the department does not have expertise in financial monitoring to analyse complex investment procedures. Further support from central bank is necessary when financial problems crop up in the cooperatives sector as the cooperative department doesnot have any expert on financial matter, he said,adding that four big cooperatives are already in a problem, as they are not returning deposits. However, he refrained from naming those cooperatives.

The department's report reveals that the trend of cooperatives shutting shop and fleeing has been increasing in the recent past due to financial crisis. Authorities at Axiom and Paridrisha cooperatives have run away, cheating depositors of Rs 470 million and Rs 23.5 million, respectively. Other cooperatives are also in a critical condition. "Oriental is also not returning deposits but has not closed its office yet," he said.

The cooperatives sector has deposits of about Rs 120 billion – mostly from poor and middle-income families. Of the total investment, about 11,500 savings and credit cooperatives have Rs 92 billion investment. However, a weak monitoring mechanism has put the deposits at risk.

A central bank study on savings and credit cooperatives two years back had revealed numerous irregularities, including large and irrational investments in real estate and housing sector, charging loans at up to 60 per cent interest, loans being given to promoters, and up to eight per cent service fee. The central bank had advised that such practices must be controlled through law and policy.

The government had announced that it would develop and enforce the National Cooperatives Policy four months back, but there has been no further progress, giving enough room for financial embezzlement and putting depositors' hard earned money at risk.