A supervision of cooperatives conduced by Department of Cooperatives (DoC) in conjunction with Nepal Rastra Bank (NRB) identified number of anomalies in the cooperatives sector, putting depositors at risk.
Given over 12,000 saving and credit cooperatives holding a deposit of over Rs 200 billion, the department carried out the monitoring of 133 cooperatives until mid-November over the last three years. Out of the total, 91 cooperatives are located in the Kathmandu valley and the rest outside.
During the supervision, some cooperatives were found to have transferred fixed assets like land, buildings and shares taken as collaterals in the name of board member or other companies they had promoted.
The cooperatives were found to have been run as family business, with family members working as director, audit committee member, chief executive and employees of the cooperative.
“Even the non-member and persons outside the working area of cooperatives concerned were found discreetly assuming the role of director and audit committee member,” states a paper recently presented by NRB Deputy Director Ramesh Prasad Chaulagain, who was a member of monitoring team.
He told the Post that a majority of cooperatives were found involved in such anomalies. Contrary to cooperative bylaws that stipulate the fixed number of board members, some cooperatives were found to have appointed their board members as they wished, according to the paper based on the supervision. “Kin and close circle of directors have been found appointed as advisors without making any provision in the bylaws and were provided huge remuneration to them,” it says.
The monitoring report also reveals that the saving and credit cooperatives to have exceeded the number of executives allowed by their bylaws. “There is a complete lack of corporate governance and internal control system,” states the paper. “Necessary minimum regulations, policies, working procedures and code of conducts have not been prepared and not adhered to them even by those who have prepared.”
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.
Some cooperatives were found to have maintained inadequate loan loss provision, with majority of loans being provided without following due procedures, while capitalising the interest earned as principle amount, the supervising team has revealed.
Anomalies like providing loans against the shares disbursed by same cooperatives without following any standard, advance recovery of interest, lending against bearer cheques and huge loan disbursement to single member exceeding the limit fixed by the DoC were also found during the supervision.
Although the ratio of capital and deposit should be 10 times as per the standard fixed by the DoC but some cooperatives are found to have collected deposits 113 times higher, according to the paper. “Likewise, the ratio of share capital and credit has not been maintained.”
High spread rate between the deposits and credit, transactions with non-cooperative members, discrimination between membership for promoters and others are other anomalies found during the supervision, according to the paper.
Even annual general meeting (AGM) is being held by showing fake attendance of members, and also without informing the members properly.
Chaulagain pointed out legal loopholes, lack of regulator monitoring and supervision, lack of capable chief executive in cooperatives and lack of trained human resources at the DoC as major reasons for the anomalies.
DoC Registrar Kedar Neupane said the growing anomalies were due to the lack of compliance of the existing laws, which are also weak to control the anomalies.
Neupane sought the increase in budget to beef up cross inspection of the cooperatives. “In addition, there is a need to increase the resources at the DoC along with increasing awareness among the cooperatives’ member to control the irregularities in the sector,” he added.
The paper has suggested cooperatives against going to areas where there is already huge presence of banks and financial institutions. It has also recommended cooperative be categorised in three or four groups based on their share capital, capital fund, deposit and low non-performing loans, while stressing the need for regular on and off the field supervision.
Bijay Raj Ghimire, vice-president of National Cooperative Federation of Nepal, said the increase in coordination among the concerned authorities and improving auditing system could help minimise the problems in the sector. “The problem arose in the sector as the promoters concentrated on enhancing the organisation than the status of its members,” he said.
Posted on: 2012-11-26 09:36