Members of Nepal’s troubled financial co-operatives marched on the president’s office on 8 April to demand the government compensate them for the loss of their savings and ensure stricter oversight of the sector.
The demonstration was the latest in a series of protests by members of co-ops over the past 12 months to recover their lost savings.
Last May, 21 co-ops were declared crisis-ridden by a national committee, which estimated they accounted for Rs36.289bn (£338m) in embezzled funds from 59,587 depositors. The Nepalese press estimates that 40 co-ops lost Rs. 87bn (£494m) embezzlement scandal.
In June 2024, Nepal’s prime minister announced that Rs772.44m (£7.2m) had been returned to depositors. The government says it is prioritising refunds of up to Rs. 500,000 (£2,841) per depositor, leaving those owed larger amounts unsure as to whether they will get their savings back.
Related: Nepalese government prioritises co-op fraud issue amid protests
Several high-level politicians have been arrested over the scandal, including Rabi Lamichhane, the chair of the Rastriya Swatantra Party. Lamichhane is also the owner and managing director of Gorkha Media, a company that is said to have been involved in the fraudulent activities of Maha Laxmi Savings and Credit Cooperative and Laxmi Laghubitta Bittiya Sanstha.
Nepal is home to 32,000 co-ops, 25,000 of which are financial co-ops. The chair of the Crisis-ridden Cooperatives Management Committee, Kashi Raj Dahal, told Kathmandu Post last year that the majority of these co-ops fall under local governments, who lack the powers to investigate them.
The International Monetary Fund also raised concerns over the crisis, arguing that more failures of co-operative lenders could endanger banking system soundness. In its July 2024 country report, the IMF attributed the crisis to “investment in illiquid and underperforming assets – impacting repayment capacity – combined with some cases of fraud”, advising expediting reforms to the regulatory framework and supervisory architecture.
IMG also recommended establishing a specialised regulatory authority to collect data, regulate and supervise financial co-operatives and re-license them.
Related: Nepal’s co-op crisis: Fallout continues from embezzlement scandal
In January, the central bank (Nepal Rastra Bank) published a set of draft new standards to manage the savings and credit of co-operative organisations. Under the new rules, co-operatives are authorised to collect savings exclusively from their members, while loans must not exceed 90% of total deposits. Investments in shares and debentures of non-co-operative entities, as well as in real estate, are not allowed, and family members are banned from simultaneously holding positions on the co-operative’s board or supervisory committee.
Stakeholders had until the end of February to respond to draft rules, before the bank approves them.
