KATHMANDU: Sri Laliguras Multi-Purpose Cooperative Organization, which has invested in cow farms, dairy industry, hydropower, hospitals, and colleges, was honored by the National Cooperative Federation with the 'Best Cooperative Business' award in 2018. However, five years later, the organization was unable to return its members' savings, leading the government to declare it problematic in March 2023 and initiate an investigation through the problematic cooperative management committee.

Kedarnath Sharma, involved in the food business, collected more than Rs 15 billion of savings from the general public through Shivshikhar Multipurpose and Tulsi Cooperative.

The cooperative invested heavily to open 37 departmental stores and half dozen companies under the brand 'Shiva Shikhar Mart'. The government declared the organization problematic and took action after it was unable to return the savings.

The Civil Cooperative, founded by real estate businessman Ichharaj Tamang, invested more than Rs 8 billion collected from its members in its housing projects. Now, the organization is unable to return the members' savings.

These are just a few representative examples of problems seen in the cooperative sector. According to official and informal data, more than 500 cooperative organizations across the country are in trouble as they are unable to return their members' savings. The general public claims that the 20 institutions declared problematic by the federal government have not returned Rs 36.28 billion. In addition, if the funds of other troubled organizations are included, more than Rs 2 billion of the general public is at risk in cooperatives.

According to the law, cooperatives cannot make a company a member, give loans, or invest in shares. To reduce the risk in real estate, the regulatory body has also set limits. However, taking advantage of weak laws and monitoring, cooperative operators have been misusing large sums collected from the general public in real estate, as well as in various companies and private businesses.  

When studying the cooperatives in trouble, it seems that they invested a large amount of money in real estate. Although some invested by setting up a company in the director's name, most misused the organization's savings in the name of individuals, families, and relatives. Some cooperatives have put the common people's savings at risk in the name of investing in the production and service sectors. Due to the failure to recover loans and share investments made by cooperatives in department stores, marts, agriculture sector, hospitals, colleges, etc., billions of rupees of common people's savings in those institutions are at risk.

After it was found that the funds of the organization were misused and invested in personal property and businesses, the Cooperative Reform Suggestion Task Force has already suggested bringing back the money and returning the members' savings. The government has announced plans to amend the law in the next fiscal year's budget to implement these suggestions.

Department's Instructions not Followed

After the Nepal Rastra Bank instructed banks to reduce their investment in real estate, the Department of Cooperatives also instructed cooperatives not to invest more than 25 percent in real estate in October 2010. Since investments made by cooperative organizations in companies put depositors' money at risk, cooperatives were also instructed not to invest in private firms and companies. However, due to a lack of effective monitoring and action, cooperatives have put a large amount of public money at risk by making random investments.

Legal Confusion

Legally, it is not clear what the cooperatives will do with the idea of integrating labor, skill, and capital scattered among landless farmers, skilled workers, low-income, and marginalized groups and using it for their economic, social, and cultural development. Although the government encourages the registration and operation of cooperatives in various agricultural and service sectors, apart from savings and loans, the common people seem to focus only on financial transactions. In the Cooperative Act, 2074, there is a provision that a company established for the purpose of earning profit cannot be a member of a cooperative.

There is a provision that cooperatives cannot even invest in shares and loans in such organizations. However, since the government could not strictly implement the legal provisions, cooperative owners have been misusing the cooperative's savings by opening companies.

“The chairman and the directors of cooperatives have been found risking the organizations’ huge savings by taking loans for their own company," said an officer involved in the monitoring of cooperatives.

The Cooperatives Act, 2074 has a mandatory provision that organizations should focus 70% on their main purpose and 30% on savings and loan transactions. However, this provision has not yet been implemented. Multi-purpose, agricultural, and thematic cooperatives are also limited to savings and loan transactions like banks.

According to Paritosh Paudyal, director of the National Cooperative Federation, there is a need to ensure that cooperatives dealing in savings and loans cannot engage in other businesses and that cooperatives engaged in other businesses cannot engage in financial transactions.

Lack of Regulation

Cooperatives have been making risky investments of members' savings against rules and laws, but the regulatory body has been seen as ineffective. The chief executive officer of a cooperative association said that apart from issuing instructions from time to time, the Department of Cooperatives does not take initiatives to stop risky investments by cooperatives and to ensure they return the funds.

"The officers of the department knew which cooperatives had raised savings and invested in real estate and private businesses. But because they turned a blind eye and pretended not to see it, now they have to face this crisis," he said requesting anonymity.

At present, the government does not even have real data about the registration and business conditions of cooperatives. Pitambar Ghimire, registrar of the department, says that with the implementation of federalism, the rights of cooperatives have reached the local bodies, weakening their records.

"The government's role in cooperatives is more of a promoter than a regulator. The benefits of which have been misused by the wrong people," said Ghimire.

As the savings accumulated in cooperatives started to be at risk, the government has been saying it will establish a separate regulator for cooperatives. It is mentioned in the budget statement of FY 2081/82 that a regulatory body will be established to regulate savings and credit cooperatives.