About one-third of the members of cooperatives are involved in more than one organisation in violation of government regulations. These members are not bothered much by the way the cooperatives are being operated, providing an opportunity for managers to embezzle deposits, officials said.

According to the Ministry of Land Management and Cooperatives and Poverty Alleviation, there are 34,512 cooperatives in the country with 6.3 million members. “Around 2 million individuals are members of more than one cooperative,” Secretary Gopi Nath Mainali said.

A cooperative is a member-based organisation owned and run jointly by its members who share the profits. “Many members are uninterested in the daily operation of the cooperatives, and they only show up to receive dividends,” said Mainali.

Among the 34,512 cooperatives, around 14,000 are savings and credit cooperatives. Most anomalies in the sector have been found to occur in cooperatives where members are not part of decision making.

According to Mainali, cooperatives involved in misconduct do not even invite all their members to the annual general meeting. “In addition, these cooperatives provide very little time to conduct closed sessions for financial assessment, and

so the members have no idea about their financial health.”

Cooperatives contribute an estimated 4 percent to the country’s Gross Domestic Product (GDP). In 2016, they held deposits totalling Rs302.2 billion and issued loans worth Rs274.2 billion, according to government statistics. More than 600 cooperatives are estimated to have an annual turnover of Rs50 million and above.

Last October, the government enacted the Cooperative Act 2017 which prohibits cooperatives from doing business with non-members. In a bid to prevent board members from making investments in personal ventures, the government has made it mandatory for cooperatives to develop an internal control system and submit regular financial reports to the authorities concerned.

Cooperatives need to maintain sufficient reserves in a number of funds including the cooperative promotion fund, protected capital fund, stabilisation fund and reserve fund before distributing dividends. But many organisations have been flouting this rule.

Mainali said cooperatives had been issuing loans against low-quality collateral and without adequate paperwork. “Women-operated cooperatives have been found to be better managed than others.” There are 4,300 women-operated cooperatives in the country.

A number of cooperatives including Oriental Cooperative have landed in trouble after failing to comply with good governance practices. The Problematic Cooperatives Wealth Management Committee, formed to assess troubled cooperatives, is scrutinising 7,500 claims totalling Rs8 billion against Oriental Cooperative.