Fraud increasing in microfinance institutions

Fraud has increased in microfinance institutions due to weak monitoring and internal control, according to a senior microfinance expert.
Fraud has increased in microfinance institutions due to weak monitoring and internal control, said chair of the CSD Shankar Man Shrestha during the inaugural session of ‘Symposium on Fraud Control and Management’ organised by Centre for Self-help Development (CSD) here today.
“Fraud was unheard in microfinance till a couple of years back but risen to epidemic level in recent years,” he said, adding that the MFIs leader should be vigilant and make regular interaction with the client and field staff.
CSD – one of the pioneer institutions to launch microfinance in Nepal – organised the symposium, which saw various speakers in the panel session. In the panel discussions, experienced and senior chief executives of microfinance institutions focused on the steps to tackle fraud in microfinance. The panelist outlined that monitoring and supervision is a key towards eradicating fraud. The CEO’s should have both KYC of clients and staff. They further said that CEO’s should be aware of the lifestyle of their staff to prevent the fraud in microfinance.
An expert Shyam Khatri presented on legal remedies to tackle the problems endemic in microfinance sector. He mentioned that the bank and financial institutions can themselves formulate bylaws in conjunction with relevant acts of the government to tackle banking fraud in their particular organisation and such bylaws will have legal repercussions.
Discussion was also carried out on concept of internal control and good practices seen in different organisations. Traits and qualities of good management styles were also shared among the participants. There was consensus among the staff that the MFI’s should enact preventive measures such as right and well-motivated human resources and devising strong audit control practice in the organisation.

Chinese nationals hacked ATM systems and steal money

Nepal is increasingly becoming a soft target for hackers from around the world as some Chinese hackers steal the money from ATM hacking the system yesterday night, but the depositors money in the banks is safe.
After Chinese nationals hacked ATM systems in Kathmandu, most of the banks have closed down their ATM services throughout the day today though some of them resumed their services in the evening.
The ATMs of over six banks had turned temporarily dysfunctional the whole day after a gang of six Chinese nationals hacked the banks' collective ATM system by hacking the system of Nepal Electronic Payment System (NEPS) Limited – an interface that allows the transaction of money deposited in a bank by using cards issued by other member banks – according to the Nepal Bankers Association (NBA). “The NEPS has incorporated 11 commercial banks, including Prabhu Bank, Sunrise Bank, Machhapuchchhre Bank, Janata Bank, Siddhartha Bank, Citizens Bank, NIC Asia Bank, Prime Bank, Nepal Bangladesh Bank and Global IME Bank, apart from seven development banks.”
While depositors’ money was not affected by Saturday night’s attack, the exact amount of money looted has yet to be calculated. “The Police confiscated Rs 12.60 million and around $10,000 along with 132 forged VISA debit cards, 17 authentic VISA cards, six mobile phones, a laptop and a data card but the actual figure is yet to be known,” informed the chief of Kathmandu Police Uttam Raj Subedi.
However, records show that a total of Rs 34.5 million was withdrawn illegally in the past two days, including Rs 10.5 million Indian Currency (IC) from India, according to the Payment Systems Department at the central bank. “The hackers used debit cards at least 700 times to withdraw money from ATMs.”
The central bank, through the Monetary Policy 2015-16, had directed Nepali banks and financial institutions to switch to cards equipped with microchips, as they are safer than ones with magnetic strips. Most banks have upgraded their cards to microchips. But the ATMs recognise both the magnetic cards and cards with microchips due to transition of the technology. The hackers took advantage of the weakness, according to a banker.
Five Chinese nationals allegedly involved in the ATM card forgery were arrested from Durbarmarg, Subedi said, adding that the hackers stole millions from the bank accounts of subscribers by forging ATM cards in various ATM booths. Police believe that Zhu and his accomplices used both real and cloned bank cards in a coordinated ATM cash-out attack, where hackers breach a bank or payment processor’s systems and then use bank cards to withdraw millions in a short amount of time.
After arresting – on Saturday night – Zhu Lianang from a Nabil Bank ATM booth in Durbar Marg while trying to withdraw cash, acting on a tip-off, the Police interrogated him, who withdrew thousands in cash from the ATM using cloned debit cards. Upon interrogation, Zhu named four others – Lin Jianmeng, Luo Jialei, Zhu Liangang, Qiu-Yunqing and Chen Bin Bin, all Chinese citizens – as complicit in the hacking spree.”
The Police also seized dozens of ATM cards from the Chinese nationals.
“The Police will further launch an investigation against the accused in collaboration with banks and central bank,” Subedi said, adding that the Chinese nationals landed in Nepal on August 30 – according to their passports – and were planning to return on September 2, which shows that their sole intention was to steal cash.
Those arrested will be taken to court and kept in judicial custody. If convicted they could serve up to five years behind bars, including having to pay a cash penalty equal to the amount they robbed, according to the Police.
Following the incident, some banks urged their customers and staff not to use their debit cards on ATMs operated by other banks.
Meanwhile, the central bank has formed a committee to investigate the attack.
This is, however, not the first time that the foreigners got arrested in ATM forgery in Nepal. Earlier, two Bulgarian nationals were arrested after they were found to be involved in stealing money from ATMs Pokhara in March 2017. Likewise, in April 2017, four Moldovans were also arrested from Thamel on charge of hacking ATM cards and stealing money from bank clients’ accounts the same year. That same day, a Russian national was arrested while stealing money from a Nepal Investment Bank ATM in Durbar Marg. According to the Central Investigation Bureau (CIB) under Nepal Police, in the last seven years, police have altogether arrested 24 people, 18 of whom were foreigners. “Nepalis have mostly been found assisting foreign hackers.”
As hackers are always in search of countries with weak security systems all over the world, security systems should be upgraded periodically, according to the central bank.

Supreme Court refuses to free Kist Bank ex-chief Gyawali

The Apex Court today refused to free the then chief of Kist Bank Kamal Gyawali, who has been serving a jail sentence after being convicted of banking fraud.
A division bench of justices Kedar Prasad Chalise and Dambar Bahadur Shahi rejected the plea to free Gyawali after the hearing on a case filed by Gyawali himself.
The Supreme Court rejected his plea to release him through a habeas corpus order even though he claimed that he has been detained illegally. Gyawali claimed that he was convicted by the Patan High Court and still was supposed to file an appeal at the Supreme Court. Gyawali also claimed that he had surrendered before the court respecting the verdict but sending him to jail when he still has the right to file an appeal against the judgment at the Supreme Court was 'illegal'.
Gyawali has been serving a four-year jail sentence according to the decision of the Patan High Court which also imposed a fine of Rs 42.7 million on him for bank fraud.
He was convicted for releasing millions of rupees in the name of Jamko Prakashan illegally by exercising his power – as chief executive officer – for which he was prosecuted at the High Court Patan. Borrowers Kishor Dhakal and Devaki Bastakoti and evaluator Komananda Adhikary were also convicted along with him. They had released millions with the collateral of a low quality land through overvaluation.