Hindu ascetic Ratna Devi Ghimire, 85, has saved a portion of the donations she has received over the more than 50 years she has lived at the Badri Narayan Temple in Kathmandu. In 2008, she deposited her entire savings of 300,000 rupees ($3,000) in Axim Saving and Credit Cooperative, planning to use the interest to cover her health care needs in her old age. In 2012, by which time her account record indicated she had about 700,000 rupees ($7,000), Ratna Devi Ghimire found that all money in the cooperative had been lost due to fraud, she says. Under Nepalese law, fraud applies to misuse of funds as well as theft by deception. “I may not get my capital back, let alone the interest,” she says, adding that she has no other money.
The cooperative made bad investment decisions that led to the breakdown of the company, says Shreekumar Shrestha, secretary of Axim Saving and Credit Cooperative. The National Cooperative Federation of Nepal, the umbrella organization of cooperatives in Nepal, blames the failures of cooperatives on the lack of strict government regulation. Chitra Kumari Subbha, the senior manager of the General Administration and Finance Department of the federation, faults the Department of Cooperatives as well as the division. “The Cooperative Department provides the affiliation for new organizations and also has the authority to monitor it,” Subbha says. “But even when depositors have lost billions of rupees, the department and the division are trying to escape from their responsibilities.” Pashupati Prasad Ghimire, of the division, agrees. “There is a lack of both law and resources,” he says. “We accept that there are problems in cooperatives.”
Because the Cooperatives Act does not specify penalties for fraud in the sector, the memberships of cooperatives must choose their own course of action, Pashupati Prasad Ghimire says. However, Nepal’s Country Code establishes fines and prison terms for fraudulent activity in general. The police use this law to investigate allegations of fraud in cooperatives. But owners of cooperatives are rarely punished, says economist Chiranjibi Nepal, a financial adviser to the country’s prime minister. “The operators of the cooperatives have pull,” Nepal says. “Therefore, they are not punished. Politicization of the cooperatives and sanctuary under the powerful people make it easy for the fraudsters to escape penalty. The general citizens are the ones facing the problem.” Police investigate fraud complaints filed by depositors and are often able to bring culprits to justice, says Tanka Prasad Bhattarai, police inspector of Metropolitan Police Range, Hanumandhoka, in Kathmandu. Acting on depositors’ reports, police arrested Sudhir Basnet, the former chairman of Oriental Cooperative, on fraud charges in January 2013, Bhattarai says. Basnet is out on bail of 400,000 rupees ($4,000). Additionally, more than 100 people involved in cooperative fraud in Kathmandu district were arrested from October 2013 to November 2014, he says.
All cooperatives are not the same. Most are solvent and honorably managed. However, fraudulent activity by a few cooperatives has tarnished the reputation of the entire sector, Nepal says.
Credit and savings cooperatives have played an important role in the nation’s development, he says. In agricultural societies, in which many workers earn a daily wage, cooperatives historically have offered a reliable way to save money. They also provide loans that people of modest means can use to start or develop businesses, attend university or address family needs, Nepal says. The government plans to step up oversight of the nation’s cooperatives. Apart from the legislation pending before the Assembly, the division plans to inspect more than 600 Kathmandu-based cooperatives this year, Pashupati Prasad Ghimire says. It also will make auditing and registration procedures more stringent. Starting in March, the Division Cooperative Office also will introduce training programs for staff and directors of cooperatives, he says. But for depositors like Khadka, the changes come too late. The last time Khadka protested was Jan. 9, when about 60 depositors rallied at the Commission for the Investigation of Abuse of Authority. They don’t have plans to protest in the near future, he says. He has lost all hope of recouping his deposits.
“I lost all my money in the cooperative,” Khadka says, emotions choking his voice. “I fear I will be homeless in my old age.” Ratna Devi Ghimire and Pashupati Prasad Ghimire are not related.