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Government eyes crackdown on cooperative banks

For Bangladeshis, borrowing may soon be harder

A cooperative bank in Dhaka A cooperative bank in Dhaka
  • ucanews.com reporter, Dhaka
  • Bangladesh
  • October 26, 2012
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As the country that invented micro-finance, Bangladesh has been a leader in developing effective ways to lend to the poor. Nobel Peace Prize winner Muhammad Yunus pioneered the small loans model with Grameen Bank.

But that model may now be under threat.

Following a series of scandals involving pyramid schemes run by cooperative banks, which siphoned off hundreds of millions of dollars from ordinary people, the government is looking to restrict the activities of these banks through a new bill, which is widely tipped to pass by the end of the year.

The restrictions would mean cooperatives would have to close down regional branches.  Deepak Peris, secretary of Christian Cooperative Credit Union Ltd in Dhaka (CCCUL) said that the restrictions would also mean that depositors – the people who fund loans to the poor – would be left stranded .

“Many customers would either have to go on a hectic 25-30-kilometer journey to come to Dhaka or close their accounts,” he said, adding that CCCUL would have to shut four regional branches.

Palash Palma, an electrician and CCCUL customer from Savar 25 kilometers north of Dhaka, said he would almost certainly close his account if it meant traveling into the capital.

Without depositors, cooperatives say they have no source of loan capital. And without regional branches, they would have no rural presence to collect loan repayments, said Monirul Islam, vice-president of Mercantile Cooperative Bank Limited, which has nearly 48,000 borrowers.

“If the branches are closed we will record a huge loss because we fear many members who took out loans won’t return the money,” he said.

Cooperatives are something of an institution in Bangladesh where few people have the necessary property to put forward as collateral to guarantee loans. Some nine million people are members of banking cooperatives and there are 178,300 of these institutions, from tiny operations to the likes of CCCUL which has 3.5 billion taka (US$43 million) in capital.

Critics argue that the government is going after the wrong target in trying to clampdown on cooperatives. Newspapers in Bangladesh have reported that many of the people allegedly responsible for the recent spate of pyramid schemes remain unpunished.

Two weeks ago, reports said the most senior managers of Destiny Tree Plantation, one such pyramid scheme, paid a mob of thousands of people to go on a rampage in Dhaka demanding charges be dropped. The managers reportedly have close ties to an adviser to Prime Minister Sheikh Hasina.

Doctor Syed Naimul Wadood, a professor of economics at Dhaka University, said the government’s effort to pass the new cooperatives law is illogical and would punish the many for the mistakes of the few.

“Poor people, who can’t go to banks, go to cooperatives. More financial transactions are better for the economy,” he said. “The government should not complicate the cooperatives sector with new restrictions but ensure everything is transparent and free from irregularities.

Cooperatives Department Registrar Humayun Khalid said that “the government would not do anything that goes against the public interest,” but declined to comment further.

Related reports

Pyramid scheme law ‘too little, too late’
Pyramid schemes start to collapse
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