Kathmandu, November 7

The government is finally gearing up for action to compensate thousands of depositors scammed by cooperatives.

Similar to Ponzi schemes, the cooperatives had lured depositors promising high rate of returns. After the fraud committed by the cooperatives came to light, the government formed a Cooperatives Investigation Commission led by former chairman of the Special Court Gauri Bahadur Karki. The commission submitted a report stating that 160 cooperatives had scammed depositors into parking Rs 11.41 billion, with 82 per cent of the depositors from Kathmandu Valley.

After enforcement of the new Cooperatives Act last month, the Ministry of Cooperatives and Poverty Alleviation termed cooperatives as ‘problematic’ on the recommendation of the Department of Cooperatives. As per the law, the ministry will form a high-powered committee with the authority to seize and liquidate the property of cooperatives and their executives who have defrauded depositors.

The committee named ‘Problematic Cooperatives Wealth Management Committee’ will be formed shortly, according to Suresh Pradhan, joint secretary at the Ministry of Cooperatives. “We have termed the committee a ‘biting dog’. It can seize and liquidate property of problematic cooperatives to compensate victims.”

The committee will be formed under the chairmanship of a former judge of the Appellate Court or equivalent legal professional comprising representatives from the National Cooperatives Federation of Nepal, and joint secretary of the government who has expertise on the issue. The under-secretary of the Ministry of Cooperatives and Poverty Alleviation will work as the member secretary of the committee.

The ministry has so far only declared Oriental Cooperatives as ‘problematic’. The committee will now proceed to summon the chairman and executives of all the troubled cooperatives to seek their commitment to compensate victims within a certain time.

If they fail to do so, the committee will settle the claims by liquidating the property of the ‘problematic’ cooperatives.

Of the total 160 cooperatives that were found to have scammed depositors, Oriental is the biggest defrauder, misusing an eye-popping Rs 4.20 billion in deposits and Rs 1.36 billion parked by customers for housing projects that were being developed by Oriental Builders and Developers and Kohinoor Hill Housing. Oriental had embezzled deposits of 11,840 customers.

“The liquidation process of Oriental Cooperatives will begin once the committee is formed and other cooperatives will also be declared problematic gradually on the recommendation of the Department of Cooperatives,” said Pradhan.

The Karki-led commission had found multiple cooperatives run by the same promoter.

For instance, Rajendra Shakya, promoter of Guna Cooperatives, was also operating Hatemalo Savings and Credit Cooperative and Stupa Savings and Credit Cooperative. Guna had misused Rs 662.8 million deposited by 1,268 customers, according to the report of the Karki-led commission. Shakya had misused Rs 19.8 million by investing the amount in housing projects — Guna Colony, RC Apartment, Guna Builders and Developers, Reliable Developers, LP Apartment, GN Apartment and Guna Colony projects.

Basically, savings and credit and multi-purpose cooperatives were found to be mostly involved in embezzlement of depositors’ money by taking advantage of the loopholes in the Cooperatives Act. The government had amended the act, following the cooperatives scam, with the new law introducing tougher regulations.