Multiple policies drawn up by Bangladesh Bank have failed to stop several organisations running illegal banking operations under the guise of cooperatives, a report by the central bank has revealed.
Among these organisations, Mercantile Cooperative Society has 113 branches and Aziz Cooperative Commerce and Finance Credit Society has 110 branches.
Although the Bangladesh Financial Intelligence Unit (BFIU) is currently investigating the latter, the central bank cannot take any direct action against these institutions as they are not licensed by it.
The issue was brought up during a December 5 meeting of financial regulatory bodies at Bangladesh Bank moderated by Governor Fazle Kabir.
Attendees included representatives from the Bangladesh Securities and Exchange Commission (BSEC), Office of the Registrar of Joint Stock Companies and Firms, and the Insurance Development and Regulatory Authority (IDRA).
The Micro Credit Regulatory Authority (MRA), Bangladesh Telecommunication Regulatory Commission (BTRC), and the Department of Cooperatives also participated.
An official of BFIU said Aziz Cooperative and Mercantile Cooperative are continuing their operations without the authorization of Bangladesh Bank. In addition to illegal banking practices, the BFIU investigation also found other irregularities in these two companies.
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 that 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.
According to the Bank Company Law and Cooperative Societies Act, a company cannot accept deposits or disbursements from the public without a licence from Bangladesh Bank, while 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 organisation filed a writ petition with the court claiming that Bangladesh Bank had no jurisdiction to publish such notices.
Department of Cooperatives Registrar and Director General Abdul Mazid said the BFIU has been given the responsibility to stop the illegal activities of Aziz Cooperative, as the organisation had not been cooperating with the Department since the writ petition was filed.
An investigation report was also submitted to the Department of Cooperatives asking them to take necessary measures against Dhaka Mercantile Cooperative Society.
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 organisation.
Later, the company filed a writ petition with the court when the Department of Cooperatives tried taking action against them.
The Bangladesh Bank investigation revealed that in 2001, Dhaka Mercantile Cooperative Society had a deposit of Tk1 crore with an investment of Tk53 lakh.
In 2015, its deposits stood at Tk981 crore with investment of Tk1,080 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 organisation 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.
This article was first published on Bangla Tribune