Lately, a friend who deposited millions in a cooperative bank came to me and said he had lost his life savings because the owner had run away with all the money. He said more than a thousand depositors had lost their money in the scam, and a police complaint had been filed. This is not an isolated incident. They are happening across the country for multiple reasons.
Muhammad Yunus, a Nobel laureate, created the concept of Grameen Bank, a cooperative banking system in Bangladesh. It became widespread, providing micro loans to the marginalised, average and lower middleclass people. More than 16 million people who had no access to the traditional bank loans benefitted from the scheme. Somewhat inspired by the popularity of these cooperative banks, aspiring bankers and Nepali entrepreneurs started to found cooperatives here, too.
According to recent government data, there are more than 25,000 cooperatives (saving and credit as well as multi-purpose cooperatives) with more than 7 million members across the country. One regulatory body, the Department of Cooperatives, governs these co-op organisations. However, thanks to nominal or no monitoring by the so-called Department of Cooperatives, many depositors are being cheated almost daily.
Perhaps, it is a debatable and controversial topic. But are the Class A banks, categorised by the Nepal Rastra Bank as such, any better or worse than the coops? Still, of the many sectors and industries, the banking sector is an outlier and one of the most-profitable businesses. Among the many reasons, co-ops became highly popular here because of the higher interest rates that were provided than the big banks, which was lucrative for the middle and lower-middle income people. As a result, the number of cooperatives has mushroomed in recent times, and depositors' complaints have also increased drastically.
Moreover, once there were enough deposits, some of the founders of these co-ops started to invest for their personal benefit, such as real estate property, contributing to political parties, and building big shopping complexes and malls. Consequently, some ran away, swindling depositors of their money. I know that my friend's life savings are now lost forever, and it will be a dream to recover any of that amount.
In a nutshell, some other reasons that result in market fraud are weak or no monitoring or lack thereof, unethical co-op practices, lack of effective regulations, way too many co-ops in the provincial and local units, syndicated markets with cartels, political influence on lawmakers and shady business practices.
Published: The Himalayan Times
Nepal's leading daily newspaper
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