TKP, 4-May-12
Although the dhukuti system, or informal cooperative loans, has been declared illegal, large scale transactions are going on, a study has revealed. The survey carried out by Nepal Rastra Bank (NRB) in eight major cities of the country revealed that dhukuti transactions were worth Rs 5.18 billion.
More than 50 percent of the business takes place in the Capital, according to the survey. There are 5,470 dhukuti groups in the Kathmandu valley alone.
Transactions in the Kathmandu valley are estimated to be worth Rs 3.34 billion, followed by Rs 400 million each in Dharan and Biratnagar, Rs 540 million in Chitwan, Rs 310 million in Pokhara, Rs 490 million in Birgunj and Rs 80 million each in Dhangadhi and Mahendra Nagar.
According to the study prepared by questioning members of 148 dhukuti groups, the people have been found to have spent as much as 83 percent of their income on dhukuti transactions.
Those with a monthly income of Rs 20,000 were found to have invested 38 percent of their income in dhukuti, and those making Rs 20,000 and Rs 40,000 monthly were found to have invested 43 percent of their income. People with incomes of Rs 40,000 to Rs 60,000 were investing 62 percent of their earnings, and those with incomes of Rs 60,000 to Rs 80,000 were investing 83 percent.
Those earning Rs 80,000 to Rs 100,000 monthly are investing 63 percent and those making more than Rs 100,000 monthly are investing 38 percent of their income in the system. In some cases, people have invested sums amounting to three times their income, according to the study. These dhukuti members were found to have taken loans from cooperatives and various financial institutions.
According to the study, a single person was found to be involved in several dhukutis to pay the loan of one dhukuti. That’s why such persons are more likely to get into debt.
The study has also shown reduced possibility of defaults on loans provided by dhukutis as the transactions are carried out among familiar people. However, if defaults occur, hardly few report to the police, according to the study.
As many as 81 percent of the people involved in this business were found turning to dhukuti operators for recovery of defaulted loans while only one percent were found to be going to the police. “It suggests that dhukuti members are not taking legal measures to recover bad loans,” states the report.
The study says that people with all types of professions and from both urban and rural areas and both men and women were involved in the dhukuti business. Its presence has reached both rural and urban areas and dhukuti transactions are carried out even among the non-resident Nepalis. “The size is not so big, but the biggest challenge is the social depravity it has brought among the people. People are taking huge risks to earn a quick buck, due to which families are being destroyed,” said Gopal Prasad Kafle, deputy governor of Nepal Rastra Bank.
Although most of the dhukuti transactions are cash based, some were found to have used gold, silver and diamonds, according to the study.
The study indicated that people got involved in dhukutis due to poor access to the services of banks and financial institutions, the high spread rate between the interest on deposits and loans, non-availability of appropriate financial products and complicated loan approval procedures. However, Kafle says dhukuti deteriorates common people’s banking habit and promotes informal economy. “It also makes it difficult to implement the monetary policy and price control measures,” said Kafle.
The study has suggested three measures to manage dhukuti transactions—prohibition of such transaction, managing dhukuti by formulating laws and enabling them to register as savings and credit cooperatives. “We suggest either to stop the illegal dhukuti , or at least regulate it,” said Kafle.
The report says that such transactions can be banned as they are operating without a license from any government agency. Under the Financial Intermediation Act, those involved in financial intermediation without taking a license may be fined up to Rs 20,000 or jailed for six months or be subjected to both.
The report has, however, stated that tracking those involved in dhukutis is difficult due to its informal nature. Bringing dhukutis under a legal mechanism would help people to get legal remedy in case of fraud. “However, there is a risk of money laundering,” says the report.
Regarding the third option, the report says that dhukuti operators can be asked to register as savings and credit cooperatives within six months. “It gives a safe landing option to dhukuti operators. However, this will complicate supervision as there are already so many cooperatives and it may also promote illegal activities.”
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