Despite the initiation of multiple policies, Bangladesh Bank has failed to stop illegal banking carried out in the name of cooperatives. According to a report by the central bank, several organizations are running illegal banking operations under the guise of cooperatives. Among these organizations, Mercantile Cooperative Society has 113 branches and Aziz Cooperative Commerce and Finance Credit Society has 110 branches.
The Financial Intelligence Unit of Central Bank is currently investigating the latter. The issue was brought up during a meeting of financial regulatory bodies at Bangladesh Bank on December 5.
Moderated by Governor Fazle Kabir, representatives from the Bangladesh Securities and Exchange Commission (BSEC), Office of the Registrar of Joint Stock Companies and Firms, the Insurance Development and Regulatory Authority (IDRA), Micro Credit Regulatory Authority (MRA), Bangladesh Telecommunication Regulatory Commission (BTRC) and the Department of Cooperatives participated in the meeting.
An official of BFIU said Aziz Cooperative and Mercantile Cooperative are carrying on their operations without the authorization of Bangladesh Central Bank. In addition to illegal banking practices, other irregularities were also found in these two companies, in the BFIU investigation.
Bangladesh Bank spokesman and Executive Director Shubhankar Saha said the Department of Cooperatives has been asked to take necessary steps against the two companies and the government had already been informed on the matter.
Earlier this year, a complaint was sent to the finance minister regarding the illegal banking activities of Aziz Cooperative, which has been running all its branches without any authorization.
Bangladesh Bank cannot take any direct action against these institutions as they are not licensed by the central bank.
According to the Bank Company Law and Cooperative Societies Act, a company cannot accept deposits or disbursements from the public without a license from Bangladesh Bank.
Furthermore, the act also states that cooperatives cannot have more than one branch.
The central bank has issued public notices on multiple occasions in order to keep the public away from these institutions.
On March 22, a series of warnings were published in newspapers as part of various initiatives taken to stop the illegal banking activities of Aziz Cooperative Commerce and Finance Credit Society.
However, on March 27, the organization filed a writ petition with the court claiming that Bangladesh Bank had no jurisdiction to publish such notices.
Regarding the matter, Department of Cooperatives Registrar and Director General Abdul Mazid said the Bangladesh Financial Intelligence Unit has been given the responsibility to stop the illegal activities of Aziz Cooperative, as the organization had not been cooperating with the Department since the writ petition was filed.
In addition, the central bank visited several branches of Dhaka Mercantile Cooperative Society, including its head office, to collect documentary evidence on the illegal banking operations of the organization.
Several notices were also issued to warn the public to avoid banking with the organization. Besides, an investigation report was also submitted to the Department of Cooperatives, asking them to take necessary measures against Dhaka Mercantile Cooperative Society.
Later, the company filed a writ petition with the court when the Department of Cooperative tried taking action against them. The Bangladesh Bank’s investigation revealed that in 2001 the company had a deposit of Tk1 crore with an investment of Tk53 lakh. In 2015, its deposits stood at Tk981 crore with an investment of Tk1080 crore. Within 14 years, the association’s deposits multiplied 916 times while its investment multiplied 2,036 times.
Under section 18 of the company’s sub-rules, the minimum share capital should not exceed more than Tk20 crore if the company distributes a minimum of Tk100 per share for every member. The central bank report read that it is evident from these numbers that the organization is collecting deposits in the manner of banks from non-member general customers.
Furthermore, most of these deposits were collected under long-term deposit schemes. The company’s annual deposit growth rate is around 26%, the rate of increase in deposits is about 120% over the past five years- both unusually high in comparison to the growth rates of commercial banks.
