Feelings are still running high over the scandal that has engulfed Nepal’s co-op finance sector, with police and demonstrators clashing in capital Kathmandu yesterday (20 November).
The violence broke out when police kept demonstrating co-op members away from business quarter New Baneshwar. Protestors threw stones and some demonstrators were injured when police used force against them, digital newspaper Setopati reported.
There have been a series of high-profile arrests in recent weeks, including the country’s former deputy prime minister, Rabi Lamichane, head of the Rashtriya Swatantra Party. Lamichane was arrested by the Central Investigation Bureau from his party office in October – a month after a parliamentary panel found that Galaxy Media, which he vice chairs, borrowed Rs 850m from Pokhara-based Surya Darshan co-op and spent it illegally.
Lamichane, whose party is the fourth largest in parliament, was one of 14 individuals issued an arrest warrant by Kaski District Court, reported Xinhua news agency.
He argues that his arrest was politically motivated, telling reporters: “I respect the court order, but it is politically motivated. We will strongly fight against it.”
Lamichane’s arrest followed protests by alleged fraud victims in Narayanghat of Chitwan district, which he represents as MP. Four of the protesters – depositors from Sahara Multi-Purpose Cooperative and Sunrise Savings and Credit Cooperative – were arrested outside a meeting Lamichane was holding with constituents.
The arrest is one of 411 made by investigators, with another 1,397 suspects still at large, with 212 fraud cases registered in court, with more than Rs. 80bn in fines levied in the last three years. Around 100 of Nepal’s 34,000 co-ops are seen as problematic by officials, all in the saving and credit sector.
The government claims it is continuing its work to support depositors affected by the scandal and is promising reform. At the end of October, it said it had returned more than Rs1.5bn to those affected.
Co-ops minister Balaram Adhikari, presenting data from the Problematic Cooperatives Management Committee (PCMC), told a press conference that depositors have been given partial recompensation.
But the National Campaign for Protection of Cooperative Depositors (NCPCD) has given ministers an ultimatum, telling them they have until November 20 to pay back depositors in full and threatening a fresh wave of protests.
Keshav Prasad Paudel, member secretary of the PCMC, told the press conference that full compensation has been paid to the 6,593 depositors with less than Rs100,000 in savings, adding that money owed to 438 people with bigger deposits will be released soon.
Government figures show that 62,760 depositors have demanded a refund. The savings of the remaining 56,605 will be returned with the capital, material assets and debt recovery of the co-operatives concerned, said Adhikari.
NCPCD secretary Ram Narayan Shrestha hit back, telling the Kathmandu Post: “We are not ready to believe until we meet the victims confirming to have received the money as claimed by the government.”
The latest developments follow compensation measures announced in the government budget on 28 May, with a pledge return depositors’ money up to Rs500,000 using the property of co-operatives’ operators or of their immediate kin as collateral.
These measures are still awaiting draft guidelines, the Kathmandu Post reports. The Department of Cooperatives told the paper it is “awaiting real data on the co-operatives victims but we are yet to receive the details from the provincial and local governments … Once we obtain the data, the money of the victims will be returned by selling the property of the people who misappropriated the funds.”
Rishi Raj Ghimire, former president of the Nepal Federation of Savings and Credit Cooperative Unions (Nefscun), told Rising Nepal Daily the crisis was the result of corruption and poor regulation, with complaints by depositors dating back to 2014.
“At times, there were collusions between the ill-intended managers of the co-operatives and officials of the regulatory bodies. They overlooked the multiple complaints and recommendations and let the manager and board of directors siphon off the public’s money,” added Paritosh Paudyal, director of National Cooperative Federation (NCF) of Nepal.
Ghimire wants to see “a strong and autonomous regulatory mechanism including the representatives from the NRB, chartered accountant, Ministry of Finance, Ministry of Cooperative and Department of Cooperatives” and “a new law with clear definition of membership, work scope, forced merger, qualification of directors and separate intelligence unit inside the regulator”.
Writing in the Annapurna Express, finance journalist Krishna Raman Adhikari called for improved regulation, financial literacy and co-op training for staff and managers, and reduced political interference. Adhikari also urges greater adherence to co-op principles, drawing on international examples such as Spain’s Mondragon Corporation and India’s Amul, and international standards set for the sector in resolutions by the UN and International Labour Organization.
“Strengthening governance and regulatory frameworks is essential, with the modernisation of the Cooperative Act of 1992 to close legal gaps,” he wrote. “The revised act should incorporate stringent financial regulations, anti-corruption measures and enforceable penalties for violations.
“Establishing a central regulatory authority akin to a central bank would enhance oversight and ensure consistent enforcement across federal, provincial and local levels. Governance reforms should also include independent supervisory boards, transparent election processes for leadership positions and term limits to prevent the concentration of power.”
Adhikari also recommends regular independent audits to detect risks early, and the creation of a co-operative development fund to support co-ops that adhere to governance standards.
“Nepal’s co-operative sector holds immense potential to drive economic development and support inclusive growth,” he added. “By strengthening governance, modernising regulations, enhancing financial management and investing in capacity-building, Nepal’s co-operatives can be revitalised to empower communities, support small businesses and promote sustainable development. Through these comprehensive reforms, the state can transition from a controlling role to that of a facilitator, allowing co-operatives to thrive and fulfil their role as a crucial component of the national economy.”
This week, co-operatives minister Balaram Adhikari said the government was conducting an in-depth study to resolve the problems in the co-op sector.
Interviewed by news agency Rastriya Samachar Samiti, Adhikari said a Cooperatives Problem Solving Committee has been created to examine the problem. He said there has been a lack of effective control and regulation but stressed that there are still other co-ops making a positive contribution.
The co-op sector needs to be streamlined, he said, and new bodies should be put in place – in the form of a dedicated information center, a fund, a tribunal and a new regulatory body. Discussions are under way following a parliamentary report on the crisis in Nepal’s co-ops, he added, with the government looking at where new co-ops should be established.
