Betraying the Trust: The Impact of Cooperative Fraud on Nepal’s Economy and People

SHORT INRODUCTION: 

Below is the short introduction of the members of Group 5:

 

MAYANK ACHARYA 

I am enthusiastic about technology and cybersecurity. I love to play games, listen to music and sometimes explore nature. I compiled, edited, posted this blog post and also wrote the recommendations. Feel free to comment on this blog about what you liked and didn't like.

PRAJIT K.C.

My interest largely lies in cybersecurity, networking, and data science. Throughout my career, I would therefore like to contribute to the protection of data and infrastructure systems and provide insights for security improvement.  I wrote the background study of this blog.

AASHUTOSH BUDHATHOKI

I'm passionate about travel and adventure. I love hiking and embarking on thrilling journeys to uncover hidden gems. I want to build my career around exploring the impact of technology in travel and make apps that will enhance my future adventures . Also, I did the impacts of this case.

SAMIPYA SHAH

I have a strong passion for music and I love listening to music. I’m also interested in pursuing a career in the IT field. In the future, I hope to combine my love for music with technology, exploring ways to innovate in areas like music production or sound engineering. I edited this blog post and wrote the introduction of the case.

ANUJ GURUNG

 I want to study mobile application development that focuses on user-friendly, innovative applications. My aim is to create mobile solutions which will make life easier and solve real-world problems. I wrote the learnings and conclusion of this case.

SUMIT THAPA

I have a big passion for video, photography, and editing. I want a career in IT, where I can combine my love for multimedia with technology. I did the types of offences committed on in this case.

TIMELINE OF THE PROJECT:

26th September	Our group was formed and we introduced ourselves.
Week 1	We were given a topic to make a report on.
Week 2	We divided the work among ourselves.
Week 3	We finalized the report.
Week 4	We edited the report and started to write a blog based on it.
Week 5	We submitted our report and finalized our blog.
11th November	We published our blog after the editing and final touches.

 Introduction

In the early 1950s, when Nepal became a democratic country, cooperatives were initiated to alleviate poverty and a lack of means among people in rural areas. It obtained inspiration from the Rochdale Equitable Pioneers Society of England initiated in 1844 as the first modern cooperative, and thus, Nepal followed suit with the same ideals.

 The first cooperative in Nepal was established in Chitwan in 1953 to help farmers manage land. Later, the largest part of the country's development plans included cooperatives. Even the First Five-Year Plan (1956-1961) included cooperatives as a means to improve people's lives.

 Today, there are over 34,000 cooperatives across Nepal, something which places cooperatives at an important part of the economy. Cooperatives help people in financial services, employment, agriculture, and community development. With more and more cooperatives formed, their cases of frauds and mismanagement also started increasing, causing damage to a number of people. This blog will look at how cooperative fraud is hurting Nepal's economy and its people and how it can be stopped.

The Role of Cooperatives in Nepal

 Cooperatives are meant to support needy people, especially in rural areas. Services they offer include but are not limited to the following:

 

- Financial Inclusion: Supporting those who cannot access banking services.

- Job Creation: Cooperatives provide jobs for people in farming, manufacturing sectors amongst others

- Agricultural Support: Farmers get tools, training and loans.

- Poverty Reduction: Cooperatives help people save small money and also avail small loans to improve their livelihoods.

- Empowerment of Women: Most of the cooperatives focus on women's empowerment through financial independence.

- Support to Local Enterprise: Cooperatives support local enterprise growth by providing a support system and networking.

- Rural Development: Infrastructure and welfare development in a community.

 

In as much as cooperatives have aided many people, the increase in numbers brought about a lot of problems. Many of them have been operating amidst fraud, corruption, and poor management; this is a big issue that needs urgent attention.

RESEARCH OBJECTIVES

● Gain insight on cooperatives in Nepal

●To analyze the cause and effect of cooperative fraud

●Investigate the fraud cases involving cooperatives

●To spread awareness

●To suggest and recommend solutions

●To understand economic role of cooperative in Nepal

Research methodology

For our blog, we conducted a qualitative research on cooperatives in Nepal. First we delved into the history of cooperative in Nepal to understand its importance, relevance, its roles in Nepalese economy and its structure and vulnerability to fraud and scams.

 

Types of data collected:

 

We collected qualitative data for our research  with the help of Internet, we were able to dig up many news articles relating to cooperatives and cooperative frauds. We collected data about some of the biggest cooperative scams in Nepal as well as general data regarding cooperative fraud. Our data include general as well as specific cases of fraud.

 
Data collection method:

 

Our data was collected primarily through secondary sources, including a variety of news websites, investigative articles, and official reports on cooperative fraud. These sources allowed us to compile detailed information on specific incidents and identify recurring themes in fraudulent practices across Nepal’s cooperative sector.

 

Cooperative Fraud in Nepal

 

Although cooperatives were established to help people, a number of them have been used by corrupt leaders to their advantage. Such leaders steal money, deceive the members, and make unproductive decisions that may lead to losses. Consequently, many people lose their savings while the reputation of cooperatives is destroyed.

 

Fraud in cooperatives occurs whenever the leadership misuses members' money contributed to a cooperative. This normally sets off:

 

- Money Lost: The people who have their money saved in cooperatives lose it and cannot regain it.

- Distrust of Organizational Systems: People stop trusting the cooperatives; thus, the whole system becomes less effective.

- Social Problems: Losses through cooperatives spur anger and stress in communities when people happen to lose money. This makes living together hard because it is going to break ties of bonding among these people.

- Economic Damage: It decreases investment in agriculture and other important sectors, affecting the economic condition of the country due to fraud in co-operatives.

 RESEARCH BACKGROUND

Real Cases of Co-operative Frauds in Nepal

 

There have been many sensational frauds in co-operatives. Following are some examples as to how it has taken place:

 

1. Civil Saving and Credit Co-operative:

In 2023, it came to light that Civil Savings and Credit Cooperative had embezzled money since it failed to return the money of its members for over two years. Investigations revealed that its chairperson, Icchha Raj Tamang spent the cooperative's money to invest in business firms owned by him. Tamang, in January 2024, was taken into custody for three years for money laundering.

 

2. Shiva Shikhar Multipurpose Cooperative:

The network, in another case, implicated Shiva Shikhar Multipurpose Cooperative in a scam estimated to be about 33 billion rupees. The chief of the cooperative, Kedarnath Sharma, is accused of embezzling money by sanctioning fictitious loans and making lousy investments. Sharma was arrested in 2023 by the Police in India after being on the run.

3. Kantipur Savings and Credit Cooperative:

In this case, Chandra Bahadur Lama, was arrested for embezzling approximately 8 billion rupees from its membership. The cooperative had failed to let people withdraw their money, and Lama was arrested after many of its members filed complaints.

 

What is Cooperative Fraud?

 

Cooperative fraud includes frauds perpetrated by the leaders of cooperatives through embezzlement, making fake promises, or misusing funds. There are a few common types of fraud:

 

- Misappropriation of Funds: Leaders use the money in the co-operative for personal reasons contrary to the Cooperative Act 2017.

- Fraud: Leaders defraud members of promises of returns they cannot give.

- Money Laundering: Those leaders who had money through illegal means conceal the source of such funds through fictitious investments or companies.

-Violating Laws Relating to Finance: Some co-operatives carry on activities like banks without adherence to the appropriate laws and hence contravene the Bank and Financial Institutions Act.

 

These activities not only harm the members but also seriously dent the cooperative system.

 

Why is Cooperative Fraud Dangerous?

 

Cooperative fraud hurts individuals, communities, and the economy. Here is how this fraud may take place:

 

1. Impact on Individuals

Victims of fraud lost their savings, which is devastating for people, especially elderly people or those with a little money. For example, Sita Aadhikari, 64, a woman who lost her savings in the cooperative scam, was left with no money for her old age.

 

Another victim was Chhetrakumari Dhanchhawa, who had saved money for the medical care of her disabled son. She found it difficult to take care of her son and face an insecure financial future after the fraud in the cooperative. These personal stories show how emotional and financially distressing cooperative fraud can be.

 

2. Impact on Communities

Cooperative fraud causes problems in the community: people get angry and lose trust in one another. In some instances, protests erupt and the public demands justice. Social unrest affects the stability of communities.

 

3. Impact on the Economy

Fraudulent activities carried out by cooperatives dent the confidence level of the entire system. As a result, fewer people are observed to join cooperatives, hence less investment in big sectors like agriculture amongst others. Because of this, Nepal's economy is severely hindered, more so within the rural settings where there is more demand for cooperatives.

FINDINGS AND DISCUSSIONS

 From the rising cases of co-operative fraud in Nepal, it is evident that the co-operatives that are meant for the help of people have fallen prey to personal benefits. Many such frauds occur due to poor governance, lack of proper leadership, and a lacuna in check and balance. The cases of Raj Tamang and CB Lama highlight that many co-operatives are run by a few irresponsible hands. This has led to many occasions when a lot of money was lost, and also much trust in the entire system. If these kinds of frauds aren't prevented, then citizens of our country will lose interest in any cooperatives and only a small percentage will trust cooperatives with their money. If this happens, then cooperatives will go bankrupt and only banks will be on the market.

 

Prevention Strategy for Cooperative Fraud
 

Fraud in cooperatives can be prevented by the government authority and by its members. Recommendations include:

 

Government Authority Interventions:

1. Strengthen Laws: Government needs to put in place and implement more stringent legislation concerning co-operatives.

2. More Effective Monitoring: There has to be regular auditing in place to facilitate early fraud detection.

3. Public Awareness: The government should sensitize people on how to identify fraud and secure their money.

4. Easy Reporting: The government should ease the way of reporting fraud cases for the people.

5. Training: Ethics and financial management training for leaders and members of cooperatives.

6. Work with NGOs: Government partners with NGOs in order to raise fraud awareness.

7. Effective Government Bodies: Bodies like the National Cooperative Federation of Nepal (NCF), on the part of the government, should become more effective in cutting down the fraud cases.

 

Citizen Actions:

1. Get Educated: Learn about cooperatives and how they work.

2. Check the Co-operative's Credentials: Verify whether the co-operative is registered and if it has a good track record.

3. Active Participation: Attend meetings and take active participation in decision-making activities.

4. Fraud Reporting: Report suspicious activities to the concerned authorities.

5. Join a Network: Work with others to protect against fraud.

Conclusion

Cooperatives are one of the major parts of Nepal's economy, especially in rural areas, for the facilitation and service provision to the locals. Fraud-related issues and corruption are fast degrading the effectiveness and growth of cooperatives. With a view to making cooperatives more successful, strict laws and regulations should be provided to help prevent misuse. This demands not only effective monitoring mechanisms to ensure equitable and transparent cooperatives but also training for the government and the public on how to manage cooperatives effectively. In this way, an improved level of trust in the cooperatives and their effectiveness can be extended to more users. In fact, with such measures, cooperatives are going to remain an important partner for rural communities and a player in the comprehensive development of Nepal.

 

SELF-REFLECTION

Mayank Acharya: Working on the "Cooperative Fraud in Nepal" project has been quite an insightful experience. From the recommendation part of the project, I learned that it is very important to think critically about solutions and also to connect research findings with practical actions. I also noticed that the identification of a problem is not enough, but one does need to propose some realistic steps which actually can make a difference. For example, one of my key recommendations was the improvement in the regulatory framework concerning cooperatives. I knew that for any solution to work, it has to be founded on strong laws and proper enforcement. The other important thing I learned is to have regard for the local context. In the study of cooperative fraud, for instance, I began to realize that many of the solutions which work in other countries may not apply in Nepal due to cultural, economic, and social reasons, so I became sensitive to how recommendations needed to fit the particular situation. It also taught me how to balance theory and practice in working on this project. This was a project in which I had to research the legal frameworks, study fraud cases, and do an analysis in general of its effects on the economy of Nepal. Through that, I learned how to apply theoretical knowledge into real-world problems. This also made me more confident in presenting and defending my ideas. Overall, this project has helped me in conducting more effective research, using critical thinking, and solving problems. It has also made me more aware of the complexities of issues revolving around fraud and has motivated me to further my learning on how to solve societal problems effectively.

Prajit K.C: After doing research on cooperatives in Nepal, I have learned valuable insights on cooperatives. The impact cooperatives make Nepal’s economy is huge. Especially in rural areas, cooperative plays a huge role to uplift people’s financial condition. Cooperative has become one of the pillars of the Nepalese economy. However, some of these cooperatives are also the cause of economic distress, corruption, money laundering and fraud. The cooperatives established for capital development and to aid the Nepalese society are misusing their money with their depositors' regard. From our research we learned that scandals and fraud in cooperatives are increasing rapidly. While big names such as Icchcha Raj Tamang,  Kedarnath Sharma have been caught misusing and mismanaging depositors money, there are still many smaller cases that have gone unnoticed by the public's eyes or have not yet been identified. This research has helped me strengthen my skills in analyzing problems and look out for possible red flags in the cooperatives sector. I understood how a few people’s unethical actions can harm thousands. One major challenge in addressing these issue is its scale, since there are hundreds of cooperative, monitoring all of them is difficult, especially in rural areas to reduce frauds and scan in the cooperative sector I suggest the government to properly implement laws against corruption. Government should also make a complaint system that can be used easily so people report on witnessing any misconduct. The depositors should also be aware about their cooperative's financial investments. Cooperatives thrive on trust, so it’s essential to build a system that ensures transparency and accountability. With the right measures in place, Nepal’s cooperatives can continue to support people and help them build a better future, but only if we work together to keep the system fair and honest.

Anuj Gurung: After our research on the field of cooperatives in Nepal, I have various insights about the cooperatives field not being able to fulfill their obligations/duty or what they are supposed to be doing. The cooperative fields and the one involved in cooperatives field are not doing their jobs but are being involved in the bad activities like corruption. The corruption that has been going on my motherland since many years consist of my reasons but he main ones found are  that due to poor structure, lack of integrity, lack of leadership & management succession policy and due to lack of effective governance . The impact the cooperative sector has in many abroad countries is effective and the condition of the citizens are being uplifted but in the context of my country it’s being opposite. The purpose of the cooperative field or sector being launched/published in my country is to uplift the financial condition of my fellow citizens and help in the development of society, community and country but the cooperative sectors are instead downgrading the situations and are being a thorn in the face of uplift of the situation of citizens and stooping the development. From the research me and my friends have to come to know that many people in power are doing corruption even it’s big or small they are doing it but the government aren’t being able to do anything to stop them but this research on the topic has helped me to strengthen my skill to not get involved in such cooperatives field in the future and has helped me to know some major factor to look out for while being involved in the cooperative  filed like looking at the image at that cooperative if it has the trusts of the members involved and if it’s image is good or not in the view of others and main thing we have got to know to sort out such cooperative is to do some research of it is owned/runed by single person or single family or by group of people. We should not get involved in the cooperatives owned/runed by a single person or by single family since such cooperative has turned out to be the fraud ones. Cooperatives of Nepal can bring big benefits to the country if the corruption are stopped and tight rules and regulations are implemented with right measures.  

Samipya Shah: Thinking about the situation regarding cooperative fraud in Nepal, I am deeply concerned about the scenario that has already affected hundreds of people and families. According to various reports, more than Rs. 80 billion was lost through fraud in cooperatives in the last couple of years, while police registered 212 cases. This huge sum is not just money but the dream and savings of ordinary people who trusted these institutions. What began as a way to empower the people at large and to provide access to financial services eventually turned into cases of corruption and mismanagement. Indeed, most of the cooperatives, particularly the large savings and credit organizations, have all strayed from their founding principles to date. The result has been a crisis situation where depositors emerge as casualties without any remedy. Even more distressing is that various instances have come to light where some portions of the managers in the cooperatives were able to fleece the societies with minimal prospects of accountability due to their ties with powerful political individuals. As I reflect on this problem, it obviously becomes multi-factorial in cause: the poor regulation and lack of oversight by government bodies have allowed fraudulent practices to flourish. Similarly, a lack of accountability or transparency in the operations of cooperatives has made it very easy for operators to deceive depositors. Furthermore, many of these victims are unwilling to report fraud due to fear of legal retribution or their belief that no one will pay heed to their complaints. The victims suffer a lot of emotional damage, to say the least. Besides, many people lost life savings earned by the sweat of their brow. Also, inactiveness and slow pace at which the government has taken up these issues have added frustration and despair amongst the lots that have been affected. Essentially, what is required are urgent reforms to restore faith in the system of cooperatives with a view to protecting depositors' interests. This, therefore, becomes a reflection of cooperative fraud in Nepal-a sure call for systemic change. Regulation, accountability, and integrity will have to be restored within the cooperatives as a means to forestall fraud in the future and protect the financial security of millions of Nepalese citizens.

Aashutosh Budhathoki: By researching cooperatives here in Nepal, I learned quite a lot about their importance and how they work. Cooperatives are meant to help people, poor and rural, by giving them access to financial services and support. What really weighed in my mind, however, is that financial fraud in cooperatives deeply hurts people. It's not just the loss of money, but also the loss of trust, security, and hope for the future. People like Sita and Chhetrakumari showed me how financial fraud can ravage individual and community lives. For them, this loss of savings was not financial in nature but tore into their sense of safety and belief in building a better life. It really shows just how quickly stability turns into fear and struggle when individuals are not able to trust financial systems that are supposed to help them. The one feeling that has remained long after the completion of this research is the real strength of any community lies in trust and honesty. Without these, societies can collapse at the seams. People cannot afford to lose their confidence in the local cooperatives without its repercussions reaching across the entire community. This paper has brought out greater awareness of the human element in financial problems. Evidently we need better protections to safeguard vulnerable groups from fraud and abuse. It has equally reminded me of the need to assist in developing financial systems that are safe, just, and trustworthy for all.

Sumit Thapa: What really struck me while pursuing the case study of cooperatives in Nepal was their importance to the poor and rural community; these organizations are a lifeline, providing financial services and opportunities for the excluded. However, it was the devastating impact of financial fraud within this structure that really hit me. Such fraud doesn't only have the power to rid people of their hard-earned money, but also destroy the trust and security in a life that promises them a future. Stories like those of Sita and Chhetrakumari explain the deep pain caused when savings disappeared-not just economic but emotional and social. To them, it was not only about the finances lost but about losing their hope and safety. This has poignantly brought into focus how fragile stability can get whenever trust in the financial systems is broken. In any community, the bedrock is really a question of trust and integrity; once these are found wanting, then the social fabric could be torn asunder. Quite frankly, communities cannot survive if faith is lost in basic institutional structures like cooperatives. What this research has done is put a human face to the devastating cost of financial wrongdoing and underlined the imperative of introducing more robust checks and balances in protecting vulnerable populations. It also called for the establishment of fair, secure, and reliable financial systems for the welfare and development of all citizens.

 

 

 

References:

1. [ICA - History of Cooperative Movement](https://ica.coop/en/cooperatives/history-cooperative)

2. [NCF Nepal History](https://ncfnepal.com.np/history)

3. [The News Coop - Embezzlement Crisis in Nepal](https://www.thenews.coop/embezzlement-crisis-in-nepals-co-ops-sparks-protests-in-the-street/)

4. [Republica - Critical Issues in Nepalese Cooperatives](https://myrepublica.nagariknetwork.com/news/critical-issues-of-nepalese-cooperatives-and-the-way-forward/)

5. [Himalayan Times - Cooperative Movement in Nepal](https://thehimalayantimes.com/opinion/cooperative-movement-in-nepal-still-going-strong)

6. [Government of Nepal - Cooperative Act 2074](http://deoc.gov.np/reportfiles/Coop_act_2074_1523169558_1579165830.pdf)

7.[Setopati - Cooperative Fraud Scandals](https://en.setopati.com/social/163181)

8. [My Republica - Civil Cooperative Fraud Case](https://myrepublica.nagariknetwork.com/news/cooperative-fraud-case-rabi-lamichhane-found-complicit-dhanraj-gurung-to-be-investigated/)

9. [Rising Nepal - Cooperative Fraud Awareness](https://risingnepaldaily.com/news/30819)