The number of troubled financial cooperatives is continuously rising in Kathmandu Valley, raising fears of safety of money parked by various depositors at these loosely regulated financial intermediaries.
A high-level commission formed in the first week of December to launch an inquiry into problematic savings and credit cooperatives till today labelled 70 of these units as ‘troubled’ — up from 63 around 10 days ago.
These cooperatives were classified as ‘troubled’ based on over 13,000 complaints lodged by depositors, who failed to recover their money from these institutions.
“So far, we have summoned promoters or high-ranking officials of 14 of these cooperatives and sought clarification from them,” said former chairing judge of the Special Court Gauri Bahadur Karki, who is currently heading the high-level commission. “We have also asked them to give us updated financial reports and detailed reimbursement plan.”
However, the commission is yet to determine the money that is at stake at these institutions—although it is estimated that the amount could top several billion rupees.
“We have not been able to determine the exact amount of deposits that is at risk as we have not been able to compile the data by going through each of over 13,000 complaints lodged so far,” Karki said.
To compile the data of troubled cooperatives, the commission had earlier proposed outsourcing the task because of human resource crunch at the high-level body.
Although the Ministry of Cooperatives and Poverty Alleviation had previously responded positively to the commission’s request, it has so far failed to act on it.
“Once the job is outsourced, it won’t take us long to find out the amount of deposit that needs to be recovered from these cooperatives,” Karki said.
Most of the financial cooperatives under purview of the commission ran into trouble after engaging in haphazard lending practices—especially extension of loans by securing collateral of inferior quality.
“Since the quality of collateral pledged by borrowers was of low-grade, many cooperatives are not in a position to fully recover the loan amount. This, in turn, has eroded their ability to return back money to depositors,” Karki said.
Since the establishment of first cooperative in the 1950s, the number of savings and credit, and multipurpose cooperatives today has soared to over 15,000.
Over the years, these units have played a crucial role in providing banking services to unbanked customers, as they rapidly expanded their network to every nook and corner to collect deposit and provide hassle-free credit service. Because of their presence almost everywhere, they have been able to mobilise deposits to the tune of Rs 200 billion, which is around 90 per cent of deposits held together by development banks and finance companies.
Such a huge deposit base gave leeway to these cooperatives to rampantly increase the size of their assets. But along with this a bubble was also in the making, as most of these assets were created by raising exposure to speculative real estate market and by securing low-quality collateral.
This problem was further compounded by presence of weak regulatory body, which did not even bother to see whether savings and credit cooperatives were abiding by basic rules such as the one that bars these units from mobilising deposits in excess of 10 times the paid-up capital. Weak legal provisions, like penalty that could not exceed Rs 1,500, also gave room for cooperatives to flout rules.
“The only solution to these problems is strengthening regulatory and supervisory structure and framework. This alone will guarantee safety of public’s money deposited at cooperatives that are running like banks,” Karki had earlier told The Himalayan Times.
source: the himalayan times,27 jan 2014
LINK
A high-level commission formed in the first week of December to launch an inquiry into problematic savings and credit cooperatives till today labelled 70 of these units as ‘troubled’ — up from 63 around 10 days ago.
These cooperatives were classified as ‘troubled’ based on over 13,000 complaints lodged by depositors, who failed to recover their money from these institutions.
“So far, we have summoned promoters or high-ranking officials of 14 of these cooperatives and sought clarification from them,” said former chairing judge of the Special Court Gauri Bahadur Karki, who is currently heading the high-level commission. “We have also asked them to give us updated financial reports and detailed reimbursement plan.”
However, the commission is yet to determine the money that is at stake at these institutions—although it is estimated that the amount could top several billion rupees.
“We have not been able to determine the exact amount of deposits that is at risk as we have not been able to compile the data by going through each of over 13,000 complaints lodged so far,” Karki said.
To compile the data of troubled cooperatives, the commission had earlier proposed outsourcing the task because of human resource crunch at the high-level body.
Although the Ministry of Cooperatives and Poverty Alleviation had previously responded positively to the commission’s request, it has so far failed to act on it.
“Once the job is outsourced, it won’t take us long to find out the amount of deposit that needs to be recovered from these cooperatives,” Karki said.
Most of the financial cooperatives under purview of the commission ran into trouble after engaging in haphazard lending practices—especially extension of loans by securing collateral of inferior quality.
“Since the quality of collateral pledged by borrowers was of low-grade, many cooperatives are not in a position to fully recover the loan amount. This, in turn, has eroded their ability to return back money to depositors,” Karki said.
Since the establishment of first cooperative in the 1950s, the number of savings and credit, and multipurpose cooperatives today has soared to over 15,000.
Over the years, these units have played a crucial role in providing banking services to unbanked customers, as they rapidly expanded their network to every nook and corner to collect deposit and provide hassle-free credit service. Because of their presence almost everywhere, they have been able to mobilise deposits to the tune of Rs 200 billion, which is around 90 per cent of deposits held together by development banks and finance companies.
Such a huge deposit base gave leeway to these cooperatives to rampantly increase the size of their assets. But along with this a bubble was also in the making, as most of these assets were created by raising exposure to speculative real estate market and by securing low-quality collateral.
This problem was further compounded by presence of weak regulatory body, which did not even bother to see whether savings and credit cooperatives were abiding by basic rules such as the one that bars these units from mobilising deposits in excess of 10 times the paid-up capital. Weak legal provisions, like penalty that could not exceed Rs 1,500, also gave room for cooperatives to flout rules.
“The only solution to these problems is strengthening regulatory and supervisory structure and framework. This alone will guarantee safety of public’s money deposited at cooperatives that are running like banks,” Karki had earlier told The Himalayan Times.
source: the himalayan times,27 jan 2014
LINK
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