Savings cooperatives are sometimes not all they are cracked up to be, as tens of thousands of Thais have found out to their cost.
Several years ago Suchada joined her SET-listed publishing company's savings cooperative. She believed it was a wise investment decision as her principal would be safe and the cooperative committee guaranteed a dividend yield of up to 8%.
But things did not turn out as expected. Promised dividend payments to more than 400 cooperative members were delayed, eventually falling to only 3%. Suspicions were also aroused over the transparency and financial management of the fund by the committee and its chairperson.
"Many cooperative members, myself included, have terminated our memberships. But I still haven't received my principal and dividend payments," Ms Suchada laments. "The lack of financial literacy among members is a serious shortcoming, making them perfect victims."
Thailand has more than 8,000 cooperatives with up to 11.3 million members. Money circulating in the entire system amounts to 2.25 trillion baht, almost equivalent to the country's fiscal budget or around 16.9% of GDP, according to the Agriculture and Cooperatives Ministry.
Of the total, savings cooperatives contribute 1.6 trillion baht, while other types of cooperatives account for the remaining 650 billion baht.
The cooperatives system has expanded over the years since being envisioned by King Chulalongkorn more than a century ago. Sometimes, the bigger the system, the more complicated it will be. The recent infamous case of Klongchan Credit Union Cooperative (KCUC) is a case in point.
The KCUC scandal broke a few years back and returned to public attention last August after it petitioned against the Central Bankruptcy Court order for it to undergo debt rehabilitation as part of efforts to help its 56,595 creditors affected by the 12-billion-baht embezzlement of the cooperative's funds. The KCUC cited liabilities of 21.9 billion baht for the proposed rehabilitation.
According to the court, the debt incurred between 2009 and 2012 was caused by the transfer of money to invest in a business that did not comply with the Cooperatives Act. The transaction was carried out by former KCUC board chairman Supachai Srisupa-aksorn, the key suspect in the case.
The embezzlement is also linked to Phra Dhamachayo, Wat Phra Dhammakaya's abbot, who received a series of cheques in the form of donations from Mr Supachai.
Last month KCUC's board approved a fund of 369 million baht to help members affected by the scandal.
The philosophy behind savings cooperatives is decent and practical: it encourages "self- and mutual-help" within communities. Fundamentally, it is a simple way to promote savings with an offer of attractive returns while facilitating access to loans for members with financial needs.
Their basic functions are similar to those of banks and financial institutions. However, the dividend yield or interest rates promised are often higher than those offered by banks, while lending rates, particularly for personal loans, are lower than those of banks without the need for collateral.
"Additionally, a key appeal of cooperatives is that all benefits go to their members as they are the actual owners, unlike banks where all benefits go to shareholders," says Ennoo Suesuwan, a member of the subcommittee overseeing economic, monetary and fiscal reforms under the National Reform Council (NRC). He is also a former vice-president of the Bank for Agriculture and Agricultural Cooperatives.
Hence, cooperatives are attractive, beneficial and essential for communities.
But a number of fraud cases and mismanagement issues have raised concerns that changes, even reforms, may be necessary to create sustainability, transparency and financial literacy among cooperatives' committees and members in the long term.
The bigger, the harder
Cooperatives were founded in response to the needs of farmers and aimed at promoting self and mutual reliance in communities. They have thus been under the remit of the Agriculture and Cooperatives Ministry for almost a hundred years. But their steady expansion in both numbers and value of assets has raised concerns if they should remain with the ministry, whose financial literacy may be inadequate.
Many past cases of collapse and bankruptcy due to fraud, mismanagement and the lack of financial acumen and transparency have driven home the need for cooperatives to be under the charge of a more knowledgeable agency and ministry.
According to Mr Ennoo, today there are a number of cooperatives with more than 10 billion baht in assets, well above the assets under the supervision of some small commercial banks. It's not surprising, then, that many are jostling to become cooperatives' committee members and managers for the perks that come with the positions.
Existing laws allow members to elect their own committees by vote, a system often exploited by power-hungry candidates to issue populist policies. These often lack financial viability, posing risks to the funds and members — sadly, just like what many politicians do.
"Many offer members higher deposit rates and lower lending rates, which are not feasible in practice. And that usually drives the elected committees to invest in higher risk instruments such as lotteries and stocks in order to gain higher returns," says Mr Ennoo.
Many committees lend money to other cooperatives in the hope of getting better returns to offset losses incurred by their populist policies, he says.
"Many savings cooperatives have lent money to agricultural cooperatives, whose members are mostly farmers with low and unstable income that rely heavily on unpredictable crop yields. This often results in many failing to pay off their debts, causing severe liquidity crunches to lender savings cooperatives," says Mr Ennoo.
At state enterprises or government agencies, savings cooperatives are often run by high-ranking officers in the organisations. This structure discourages members, who are often their subordinates, from filing complaints or lawsuits against their supervisors when any wrongdoing or fraud is discovered.
"Committee members and other related parties lack the 'spirit of cooperatives' and this must be changed," says Mr Ennoo.
The Cooperative Promotion Department (CPD), the Agriculture and Cooperatives Ministry, which currently oversees all cooperatives seems unable to keep up with the more complicated and sophisticated issues that arise from the continuing expansion of the cooperatives system. Analysts and policymakers have their doubts about the department's financial acumen and expertise over these matters and many are urging changes.
Proposed solutions
Recently a committee overseeing economic, monetary and fiscal reforms under the NRC proposed setting up an independent body to supervise cooperatives nationwide. The body will comprise experts from the Finance Ministry, the Bank of Thailand, the cooperatives and other entities, and come under the Finance Ministry's supervision.
According to Mr Ennoo, the body will regulate overall cooperatives, ensure good governance and transparency and promote financial literacy among all cooperative members and committees. It will also be equipped with sufficient power and authority to order any committee to take legal action against perpetrators of dodgy activities.
Stricter laws and amendments to current regulations will be required to make changes possible. Heavier punishments and better law enforcement against wrongdoers must also be drawn up.
"Taking legal action against wrongdoers is essential as we've hardly done so in the past. We can't totally get rid of fraud and graft but being able to eliminate 90-95% will be good," Mr Ennoo says.
Committee members will be required to take and pass necessary financial courses at certified institutions, while cooperative members and internal auditors would also be taught financial affairs.
Mr Ennoo says 90% of NRC members have given the nod to the proposals.
Bank of Thailand governor Prasarn Trairatvorakul recently agreed that an independent organisation should be established to supervise the cooperatives. But he said setting up a new organisation is not easy and does not always ensure success.
"In the past 20 years there have been good examples of setting up independent bodies, but others have not met expectations," says Mr Prasarn.
Opas Klanbus, director-general of the CPD, does not agree with the idea of an independent body.
While admitting that some of its outdated regulations must be changed, he believes the cooperatives should remain under the Agriculture and Cooperatives Ministry's supervision.
"I don't think we can produce a sufficient number of financial experts to sit on an independent body. The easiest way to solve this urgent problem is to amend some existing regulations to suit the ongoing situation," he says. adding that it usually takes several years to set up an independent body and draft a new legislation.