Restricting unauthorized banking
Sunday, 28 October 2007
Allegations have been galore that a section of cooperative societies are cheating unsuspecting small savers through their unlawful banking transactions. The legal lacuna has helped these societies to use the word -- bank -- at the end of their respective names, to mushroom and thrive across the country, particularly in the capital city. Innocent depositors allured by the promise of higher returns, in many cases, have lost their capital as sponsors of a good number of so-called cooperative banks have melted into thin air after taking the deposits from them. Besides banking business, some of these societies are even engaged in insurance business.
In the face of occasional media reports on the illegal banking business by cooperative societies, the central bank in the past had advised the members of the public to avoid any sort of banking transactions with the so-called cooperative banks. The Bangladesh Bank could not do anything more than that since it was not legally authorized to take punitive actions against errant societies that are supposed to be regulated by the Department of Cooperatives. Moreover, the relevant laws and rules do not prohibit the use of the word -- bank -- by the cooperative societies and the governments in the past did not also feel the necessity of amending the same. However, the incumbent government has recently amended the Bank Companies Act through an ordinance imposing restriction on the use of the word, bank, by any organization or company other than banking institutions. What is more important that a five-member committee formed by the ministry of local government, rural development and cooperatives has finalized amendments to cooperative laws and rules debarring cooperative societies from collecting deposits, extending credits to anyone other than their members and doing insurance business. The existing cooperative laws would also be amended to impose restrictions on the use of the word-bank-by the cooperative societies.
The amendments to the Bank Companies Act together with the relevant cooperative laws are expected to put in place the legal restriction on the cooperative societies to operate as banks and thereby mislead the innocent investors. But enforcement of laws and rules thereof, traditionally, has been a major problem in this country. The agencies concerned are found to be either reluctant or indifferent to enforce the laws that are meant to help the people. One cannot pin much hope either on the proper enforcement of the proposed amendments to the cooperative laws if one looks at the track record of the Department of Cooperatives. Irregularities in the registration, supervision and auditing of cooperative societies, allegedly, have been rampant. There is every possibility that a section of cooperative bodies would continue their illegal banking and insurance business activities clandestinely with the help of some dishonest officials of the cooperative department. The Registrar of Cooperatives should do all the needful to ensure proper enforcement of the restrictions to be imposed through amendments to the cooperative laws.
Besides, the central bank, on its part, does also need to look into the reasons that compel the people of small means to make deposits with, or take loans from, the so-called cooperative 'banks'. These people, particularly small businessmen, take the services of the cooperative 'banks' since the traditional banks are failing to meet their needs or offering conditions that they find very hard to accept. The SME banking services now being offered by the scheduled banks are yet to be popular among the small and marginal traders because of the procedural rigors. The central bank needs to devise ways to satisfy the needs of the people of small means who feel more comfortable in informal ways of doing business.
In the face of occasional media reports on the illegal banking business by cooperative societies, the central bank in the past had advised the members of the public to avoid any sort of banking transactions with the so-called cooperative banks. The Bangladesh Bank could not do anything more than that since it was not legally authorized to take punitive actions against errant societies that are supposed to be regulated by the Department of Cooperatives. Moreover, the relevant laws and rules do not prohibit the use of the word -- bank -- by the cooperative societies and the governments in the past did not also feel the necessity of amending the same. However, the incumbent government has recently amended the Bank Companies Act through an ordinance imposing restriction on the use of the word, bank, by any organization or company other than banking institutions. What is more important that a five-member committee formed by the ministry of local government, rural development and cooperatives has finalized amendments to cooperative laws and rules debarring cooperative societies from collecting deposits, extending credits to anyone other than their members and doing insurance business. The existing cooperative laws would also be amended to impose restrictions on the use of the word-bank-by the cooperative societies.
The amendments to the Bank Companies Act together with the relevant cooperative laws are expected to put in place the legal restriction on the cooperative societies to operate as banks and thereby mislead the innocent investors. But enforcement of laws and rules thereof, traditionally, has been a major problem in this country. The agencies concerned are found to be either reluctant or indifferent to enforce the laws that are meant to help the people. One cannot pin much hope either on the proper enforcement of the proposed amendments to the cooperative laws if one looks at the track record of the Department of Cooperatives. Irregularities in the registration, supervision and auditing of cooperative societies, allegedly, have been rampant. There is every possibility that a section of cooperative bodies would continue their illegal banking and insurance business activities clandestinely with the help of some dishonest officials of the cooperative department. The Registrar of Cooperatives should do all the needful to ensure proper enforcement of the restrictions to be imposed through amendments to the cooperative laws.
Besides, the central bank, on its part, does also need to look into the reasons that compel the people of small means to make deposits with, or take loans from, the so-called cooperative 'banks'. These people, particularly small businessmen, take the services of the cooperative 'banks' since the traditional banks are failing to meet their needs or offering conditions that they find very hard to accept. The SME banking services now being offered by the scheduled banks are yet to be popular among the small and marginal traders because of the procedural rigors. The central bank needs to devise ways to satisfy the needs of the people of small means who feel more comfortable in informal ways of doing business.