While thousands of loan shark victims wait for justice and get their money back, the political machinery makes minimal steps in the process of stopping and sanctioning malpractices.

Around 32,000 saving and credit cooperations collect small sums from mostly poor depositors, who believe these organisations will make them better off. This sector, however, has come under severe public and political scrutiny due to unrest over investment failures, which have caused many to lose money.

1. Staged protests

Dormant members, weak governance and management, inadequately trained human resources, lack of business plans, weak monitoring information, reporting and performance standards, absence of targeting, and sloppy portfolio management are significant problems across the board. But there is more. Some cooperatives are run by wealthy people who use the deposit for their interests. As a result, members of cooperatives have lost all their input due to financial fraud.

In March, hundreds of usury victims walked for days from Jhapa in the east and Kanchanpur in the west to Kathmandu in the heart of the country to pressure the authorities to remedy this persistent problem. They staged protests near Singha Durbar, the government’s central secretariat, and in front of the Parliament building in Baneshwar. In response, Joint Secretary Rudra Prasad Pandit headed a government team and spoke with Abadesh Prasad Kishawaha, the protest’s leader. The government agreed to form a three-member inquiry commission to study the issue of loan sharking and submit a report recommending solutions to end criminal practices.

Were victims forced to sign falsified documents, saying they received inflated amounts? Did lenders charge exorbitant interest rates? An earlier commission led by a former judge, Gauri Bahadur Karki, detected hundreds of similar cases.

The cooperative sector reached a crisis as it did not follow fundamental values such as self-governance. Profit motives guided them.

2. A crisis

In April, Kashi Raj Dahal, the governmental Cooperatives Management Committee chairman, spoke at length with Thira Lal Bhusal, the News Editor of The Kathmandu Post. He stated that around 25,000 cooperatives are involved only in financial activities, mainly collecting deposits and issuing loans. According to Dahal, some 500 are now in crisis, mainly in rural areas.

Dahal did not mince his words. The cooperative sector reached a crisis because it did not follow fundamental values such as self-governance. Profit motives prevail, often for personal gain or nepotism. “Members of a single family and their close relatives often control nearly all of an organisation’s activities,” said Dahal. Offenders pretend their wives are running the activities or forge their signatures. Husbands get loans based on their wives’ guarantees or vice versa. “Such anomalies are rampant.”

3. Overall lack of governance

Investments in non-productive sectors are problematic, too, as is the overall lack of governance, internal or by the authorities. Cooperatives have invested in real estate, apartments, marts, vehicles and hydro projects. Massive amounts are locked up in real estate, not delivering enough return on investment.

The Shiva Shikhar Cooperative, for example, is one of the 20 cooperatives declared crisis-ridden by the government. Over 3,000 of its depositors registered complaints, and their claim for recovery is enormous. Billions of rupees have been given as loans without solid collateral, sometimes to close relatives. “Things wouldn’t be so bad if the responsible agencies had stepped in on time,” said Dahal. Declaring a cooperative ‘crisis-stricken’ is not enough. “We need sufficient manpower, resources and logistics to look into them. Also, security arrangements should be ensured as even gangsters embezzle big amounts of cooperatives’ deposits.”

Dahal’s cure would be ‘an all-powerful commission’ that should have the authority to arrest suspects, take people into custody, seize property and file cases in court. “It should be able to issue nationwide notices to gather information about cooperatives and categorise them into green, yellow, and red zones. The existing agencies can’t resolve this issue.”

The irksome reality is that Nepal has fraudproof lawmaking in place

4. Crisis meeting

The irksome reality is that Nepal has fraudproof lawmaking in place. The Cooperative Act (2021) provides a credit recovery tribunal, which has not yet been installed. The same law demands that a credit information centre be implemented to help trace people who take out loans from multiple locations and disappear. It also stipulated risk-bearing, reserve, and stabilisation funds to manage crises and protect cooperatives from probable operational losses. None of these rules were translated into practice.

The national government may not only lack the legal authority to intervene locally or the manpower and skills to tackle the problem, but it also hesitates to act, afraid to disrupt the balance between various political parties since prominent party members may be implicated as potential offenders.

Mid-April, Speaker Devraj Ghimire arranged a crisis meeting with the top leaders of the four major political parties to seek a breakthrough in forming the committee promised to the protestors in March. The meeting ended without consensus after the ruling parties rejected the demand of the Nepali Congress (NC) to specifically investigate Deputy Prime Minister and Home Minister Rabi Lamichhane’s potential involvement in a related scam – something he has denied consistently.

What started locally at the country’s borders became national politics.

5. The gravity of the situation

Rabi Lamichhane is a prominent Rastriya Swatantra Party (RSP) leader and was Deputy Prime Minister and Home Minister at the time in a government led by Pushpa Kamal Dahal, better known as ‘Prachanda’.

What started locally at the country’s borders became national politics. The NC, the oldest political force in Nepal and the largest block in Parliament, threatened to disrupt parliamentary proceedings but later withdrew this threat when a compromise was found, agreeing that any involvement of Lamichhane must be proven or not during the further legal investigation.

Meanwhile, another national newspaper, My Republica, wrote that the public’s discontent with the leaders and the system due to the tendency of political parties to use the power of parliament for their self-interest and stubbornness grew. “It is imperative,” the paper stated, “for political party leaders and especially MPs to understand the gravity of the situation and improve parliamentary practices.” PM Dahal was prompted to give the desired committee free rein to investigate any misconduct, including Lamichhane’s. Still, the paper also argued that the latter should be allowed to explain his case before the rostrum of Parliament.

6. Stalemate

Things got heated in May. Kailash Sirohiya, the Chairman of the Kantipur Media Group and the publisher of The Kathmandu Post was arrested, leading to NC questions to the Prachanda government. The same party also sought the prime minister’s response to attacks the RSP foreman had made against Gagan Thapa, the NC’s general secretary. Lamichhane accused him of selling the country’s secrets to foreigners and claimed that Thapa had embezzled millions of rupees under the pretext of constructing a park at the Tri-Chandra College and misused agricultural grants. He also asked whether the main opposition would want a probe panel to investigate those accused of grabbing the land of Bansbari Leather and Shoe Factory, illegally registering public land in Tikapur under individuals’ names, a luxury watch theft, or selling diplomatic passports.

A stalemate lurked around the corner, as neither side had the power to push through. All this led to more street protests engineered by NC-friendly cheerleaders. But then, temperaments cooled down, and political reasoning took the upper hand.

A seven-member committee Pushpa Kamal Dahal, Nepali Congress top leaders, and CPN-UML Chairman KP Oli met at the prime minister’s residence after a meeting at the ‘task force level’. Other attendees were the Minister of Law Padam Giri, Chief Whip Mahesh Bartaula – both UML -and Congress leaders Gyanendra Bahadur Karki and Jeevan Pariyar and Shishir Khanal of the Rastriya Swatantra Party. Lamichhane was absent. Bartaula later said that the three parties agreed to show maximum flexibility to reach a consensus. “We are against forming a person-centric parliamentary committee altogether, but after the Congress agreed to avoid mentioning Lamichhane’s name in the ‘terms of reference’ (TOR), we are now working to reach a consensus on investigating the cooperatives scam.”

In June, the parliament finally formed a seven-member committee—led by lawmaker Surya Thapa (CPN-UML)—to investigate various cooperatives’ misuse of funds in their custody. However, this did not increase the speed of the proceedings. Committee member Ishwari Neupane (Nepal Congress) publicly criticised the chairman’s lack of initiative. Surya Thapa reacted by saying he was waiting for office space and personnel. Meanwhile, Padam Giri, minister for law, justice and parliamentary affairs, defined the terms of reference for the probe committee to investigate cooperatives facing crisis, their legal and institutional purposes, financial systems, regulations, supervision, and transparency.

7. A writ petition

Based on study and analysis, the panel must also recommend measures to immediately return savings to the depositors of the crisis-ridden cooperatives. The Department of Cooperatives has listed 20 cooperatives as crisis-ridden, with billions of rupees of depositors’ money at risk. Hence, the committee needs to track the condition of funds from these problematic cooperatives. The committee was given three months to complete this voluminous job.Based on study and analysis, the panel must also recommend measures to immediately return savings to the depositors of the crisis-ridden cooperatives. The Department of Cooperatives has listed 20 cooperatives as crisis-ridden, with billions of rupees of depositors’ money at risk. Hence, the committee needs to track the condition of funds from these problematic cooperatives. The committee was given three months to complete this voluminous job.

Previously, Attorney General Dinmani Phokarel had filed a writ petition demanding Lamicchhane’s suspension as deputy prime minister and minister for home affairs, which threatened his role in national politics in July. A full Supreme Court bench will decide a final verdict after two division bench justices ruled differently on the petition in July.

Before the Supreme Court could issue a verdict, Prachanda’s government lost its majority in parliament and was replaced by a new coalition. On July 16^th, President Ram Chandra Paudel swore in a 22-member Cabinet of Ministers led by CPN-UML chair KP Sharma Oli. Ten ministers are from the Congress, while nine represent the UML. The other parties in the cabinet are the Janata Samajabadi Party (JSP), led by Ashok Rai, and Loktantrik Samajbadi Party (LSP), which have two and one ministry, respectively. The RSP is not a member of this coalition and will play a role in the opposition benches.

This story is not over. Catching the sharks may take a long time. To be continued…

Sources

• The Kathmandu Post
• Research Gate
• The Rising Nepal
• My Republica