Regulators leniency puts depositors at risk
KATHMANDU, DEC 11 -
Despite sizable deposits, the country’s cooperative sector has hardly been regulated properly, leaving despositors at risk.
Of the total deposits of Rs 139.5 billion in the cooperative sector, most of the deposits concentrated in saving and credit cooperatives are most vulnerable. The saving and credit cooperatives hold Rs 109.94 billion, which is 10 percent of the total deposits in A, B and C class banks and financial institutions010.
Despite more cooperatives running into crisis due to haphazard lending and bad corporate governance, the Department of Cooperative (DoC) has yet to take any punitive action against wrongdoers. Lately, problems have emerged in big cooperatives such as Guna and Oriental besides Corona, Exim and Ugrachandi. That has left the depositors at receiving end as they could not get back their deposits even after maturity of their fixed deposits.
The DoC’s monitoring of 133 cooperatives over the last three years have also identified a number of anomalies in the cooperative sector.
A majority of the cooperatives were found to have transferred fixed assets taken as collateral in the name of directors, running the institution as family business with single family holding several posts in board and directors and non members also assuming the role of directors.
While providing loans, some cooperatives were found to have charged service fee as high as eight percent and flat interest rate up to 60 percent. On the other hand, top officials and chief executive of some cooperatives were found to have taken advance money as they wished and taken out loans without collateral and at very low interest rate, according to the monitoring report.
Rana Bahadur Shrestha, secretary at the Ministry of Cooperatives and Poverty Alleviation (MoCPA), said that the government did not want to interfere in the business es of cooperatives as they are the autonomous institutions. “The Cooperative Act does not allow the government to take punitive action against cooperatives,” said Shrestha. As per the clause 36 of the Cooperative Act 1992, the DoC is only to suggest cooperatives if it finds any cooperatives breaching the Act. On the other hand, the DoC’s problem of inadequate staff prevents regular monitoring of the cooperatives. Out of the total 26, 501 cooperatives, 11,851 are saving and credit cooperatives. The DoC monitored only 60 cooperatives last fiscal year.
The cooperatives themselves are flouting the cooperative principles such as the limiting the transactions among the cooperatives as well. Cooperative Standard issued by the DoC allows them to run business only in partnership, but they have been running their own business es. Particularly, the loans have been taken for the real estate projects promoted by realty traders which pushed cooperatives into crisis.
According to a member of monitoring team, a majority of cooperatives were found to have huge exposure to the troubled realty sector with some having more than 60 percent exposure.
Min Raj Kadel, president of Nepal Federation of Saving and Credit Cooperative Union (NEFSCUN), said that the cooperatives plunged into problems in the recent days due to their investment in realty sector although the standard set by the DoC bars lending in their own business .
The World Council of Credit Unions has fixed PEARLS monitoring system for creditors which the cooperatives are also supposed to follow. PEARLS stand for protection of deposit’s money, effective financial structure with lending remaining 70-80 percent of total assets, asset quality, rate of return and cost, adequate liquidity and sign of growth.
“However, these tools are not being followed by many cooperatives posing risks to depositors,” said Kadel. He said that NEFSCUN has been training cooperatives about implementing the PEARLS system.
Meanwhile, the MoCPA said it has started homework on formulating a new regulation amid growing anomalies in the sector.
Source: The Kathmandu Post
