Revolving fund worth Rs12 billion in disarray

Ramji Singh, secretary of the Pragatisheel Community Organisation in Indrawati Rural Municipality-6 of Sindhupalchok, says the group hasn’t held a meeting for the past seven years. “After the members who had taken out loans got into disputes, the organization’s accounts are in disarray,” he says.

The organization had received a revolving fund of Rs204,000 through the Federation of Community Forestry Users Nepal, a partner of Poverty Alleviation Fund. The members had each contributed Rs22,000 to the fund. But the loans were never repaid and the organization stopped functioning.

This, however, is not a unique case. The Poverty Alleviation Fund has invested over Rs15,600,000 through 49 such organizations in Indrawati Rural Municipality alone. “We kept quiet after the debtors questioned our concern regarding the amount of the Poverty Alleviation Fund,” says Shashi Nath Acharya, the rural municipality spokesperson.

The Pragatisheel Community Organisation received the donation under the ‘Community organization and small infrastructure development’, project of the Poverty Alleviation Fund. According to Singh, the secretary, they have been unable to collect the amount despite knowing those who took it as loan. Moreover, as the federation which is a partner organization itself is indifferent to it, the organization is almost dysfunctional now. Singh adds that over the past eight years, neither the federation has sought the organization’s accounts not the rural municipality.

No detail of accounts and no regulations

The same situation is apparent in local governments such as Ganyapdhura in Dadeldhura, Aarughat in Gorkha, and Purchaudi in Baitadi. While millions of rupees appear to have been transferred to various organizations, the local governments themselves are oblivious of what actually happened to those funds. Neither does the erstwhile Ministry of Land Management, Cooperative and Poverty Alleviation, where the Poverty Alleviation Fund was merged, have an exact data about it. “We don’t have any information about it,” says Jagadish Prasad Joshi, chief administrative officer of Purchaudi Municipality. “As nobody demanded it, we didn’t look for it either.”

As many as 32,276 community organizations from 551 local governments have received the revolving fund’s amount. According to Sri Ram Thakur, chief of the Poverty Alleviation Fund Record Management Program at the ministry, none of those local governments have updated the details about the funds so far.

Agabir Chand, chair of Baijanath Community Organization in Ganyapdhura Rural Municipality-1 Jadpila of Dadeldhura, says the organization hasn’t held a meeting for five years as the duration of the project run under the Poverty Alleviation Fund has expired.

“I haven’t submitted any record to anyone, and neither has anyone from the rural municipality asked me,” he says. “Many who have taken loans from the fund haven’t paid back and we don’t know how to punish those who haven’t repaid.” Chand, however, said that he is ready to provide details of who had taken the loans and how much, and also where the funds were invested in.

Dilip Tamang, chief administrative officer of the rural municipality, said that while his office has studied the details, it hasn’t been able to regulate and monitor them. “We had collected the details back in 2077 BS but we haven’t yet been able to collect the invested sum.”

As much as Rs30,871,605 appears to have been distributed in Ganyapdhura, which is the native land of former prime minister Sher Bahadur Deuba, through 79 community organizations.

As of writing this report, 20 of the 21 local governments surveyed didn’t have exact details of how the funds were used.

Dissolution of the Fund, responsibility handed over to the local governments

The Poverty Alleviation Fund was established in 2060 BS. From 2061 BS , it took a donation of USD 15,000,000 from the World Bank and invested it in six districts—Darchula Kapilvastu, Ramechhap, Makawanpur, Pyuthan and Mugu. In the year 2062/63 BS, the same program was expanded to 25 districts. Until its expiry, the Poverty Alleviation Fund’s program had reached as many as 64 districts.

The Fund had helped form community organizations with 13-25 members belonging to the impoverished class and mobilized the amounts through them. But the program, run by the World Bank, expired on Poush 16, 2075 BS.

One of the main reasons behind the Fund’s dissolution was corruption. The then executive director Raj Babu Shrestha and nine others were convicted in a graft case filed by the Commission for the Investigation of Abuse of Authority. There were news circulating regarding irregularities in salaries and allowances, internal conflict within the organization; and then after its software was hacked, all of the Fund’s records were destroyed.

The Fund, run with support of the World Bank, dissolved right after the program expired. With the donation stopped and corruption charges, the then Cabinet on Kartik 15, 2075 BS dissolved the Fund under the Amendment Bill and decided to move forward all programs under the Fund through the Ministry of Land Reform, Poverty Alleviation and Cooperatives.

The 70th Board Meeting of the Fund chaired by then prime minister and the Fund’s chair KP Sharma Oli on Chaitra 24, 2075 decided to make further decisions on the management of Fund’s development projects through the local governments.

Likewise, that meeting also approved the guidelines to provide local governments with the details about the community organizations augmented through the Poverty Alleviation Fund and to guide them for better management.

The guideline directs the local governments to provide records of the revolving fund to the cooperatives department and also hand over the authority to manage it. Local governments, meanwhile, are required to update the status of the projects run under the Fund’s program.

Moreover, the guidelines also give local governments the responsibility to devise ways to turn the amount of the revolving fund into an endowment fund; update the status of loans; and if the members are not able to pay back loan, provide them suggestions to find ways to do so.

But local governments have ignored the multiple calls by the Poverty Alleviation Fund Record Management Program under the ministry to provide details about the revolving fund.

Rajendra Prasad Pyakurel, executive director of National Association of Rural Municipalities in Nepal, says his office has yet to study the Poverty Alleviation Fund. “When I worked at the District Coordination Committee in Sindhupalchowk before 2073 BS, we had transformed some community organizations into cooperatives, but later the Fund was mired in a corruption scandal and was dissolved. The Fund’s amount is currently in disarray,” Pyakurel said.

He added that the association is currently unaware about the status of the Fund’s money and it hasn’t made efforts to study or investigate it.

Krishna Prasad Sapkota, vice-chair of Municipal Association of Nepal, says that some District Development Committees had kept some of the amount of the revolving fund, and some municipalities have held the amounts under their name.

But Sapkota said he is unaware of the Rs3,357,416 amount of the revolving fund disbursed to 36 community organizations in Chautara Sangachowkgadhi Municipality, of which he is the mayor.

“We know that the amount held by various partner organizations and the district development committee has been transferred to the accounts of various municipalities, but we don’t know the details,” he said.
The government had perceived the revolving fund as an endowment fund. But in practice, it became an emergency fund. Neither was the loan repaid nor were the official accounts and records managed.

While some invested it in agriculture, others used it for medical treatment and others to buy vehicles. Some other organizations decided to waive off the interests and never received the principal back. Meanwhile, some organizations saw disputes between their members that hampered their functioning.

If the amount was collected with interest, it would contribute to local resource building. But it is now in disarray, stuck inside loanees’ houses, away from the remit of law and regulation.

Aamchowk: An exemplary rural municipality

Amid this, Bhojpur’s Aamchowk Rural Municipality stands out. It has formulated a guideline to manage the fund’s amount.

Dhan Kumar Rai, the rural municipality’s chief administrative officer, says that of the 66 community organizations in the local unit, 21 from three wards have already been turned to cooperatives.

The rural municipality has Rs22,039,154 of the revolving fund and Rs2,448,795 of the community organizations, according to Rai. Altogether, the local unit currently has Rs24.9 million, including the principals and interests. But the local unit is currently facing a problem to manage it due to lack of human resources, according to Rai.

“Some people with connections and power, however, are refusing to pay back the loan,” he says.

Corruption and lack of long-term plan

The revolving fund was criticized upon its launch for lacking a long-term structure and for its experimental nature. But the government ran it under community organizations, which were not legally registered and there was no permanent mechanism to regulate them.

With the project’s expiry, the plan was also dissolved. The government had no exit strategy. When the Poverty Alleviation Fund was dissolved in 2075 BS, there was no authority to collect the amounts. There was confusion over how to transform the organizations. “While the government dissolved the Fund, it had no plan on the way forward,” says economist Dr Nara Bahadur Thapa. “It didn’t pay attention to regulation and monitoring.”

As the Fund was dissolved in the early days of the federalism’s implementation, there was a lack of coordination between the three tiers of government. Local governments lacked the ability to manage the project. Meanwhile, the federal ministries couldn’t keep proper records of the amounts.

Even to this day, local governments don’t have an exact record of loanees in their jurisdiction. The state’s policy has proven to be fundamentally flawed.

Five years since federalism’s implementation, many local governments lack proper understanding of programs such as the revolving fund. Questions regarding which tier of government is responsible for managing it are still open. While local government consider it to the federal government’s concern, the latter is shirking the responsibility.

The government lacks a clear plan to look after and manage the funds. Even if it has said the community organizations would be turned into cooperatives, it doesn’t have a mechanism to assist it or monitor the funds. A lack of coordination between three tiers of governments in federalism’s implementation is the main reason behind the failure of projects such as the revolving fund.

The Nepal government’s guideline had said over 32,000 community organizations promoted by the Fund would be turned into cooperatives. But that plan remains in limbo. “Local governments lack the human resource to regulate the cooperatives,” Raghunath Mahat, spokesperson of cooperatives department, says.

The cooperative department says that if these community organizations are to be turned into cooperatives, the already beleaguered cooperative sector would further worsen.

The budget had announced that the 32,000 community organizations had Rs19 billion and it would be turned into seed capital for cooperatives.

“Even though the budget states Rs19 billion, the statistics have shown only about Rs13.37 billion,” says Thakur, the cooperative department’s head. “The rest 6 billion might be return of the investment in communities.”

Moreover, while there were internal fissures within the Fund, its MSI software, formed to manage internal records, was hacked on Shrawan 30, 2075. And with that, the Fund’s records since 2060 BS were gone. Mohan GC, chief of the department of information system management, was blamed for the hack. At the time, Nahakul KC was the CEO of the Fund. And the Cabinet meeting on Kartik, 2075 BS decided to dissolve the Fund.

Potential for sustainable resource for local communities

The government had corresponded with local governments to update the details within 15 days. But the they ignored the call and hence, the amount’s status remains unknown.

“As all records were destroyed, there’s no way to calculate the amounts unless the wards take the initiative,” says Sri Ram Thakur, the chief of the Department of Record Management Program at the ministry. “Only the ward chair can identify the loanees and the amounts they have taken.”

Thakur, however, insists that the amounts would be collected anyhow.

Bansalal Tamang, former secretary of the rural municipalities’ association, says, “If local governments are able to regulate the revolving fund, it could be a sustainable source of income and could be instrumental in upgrading the lifestyle of the people.”

The Fund, launched to help uplift poor people, is now limited to paper. While some local governments have started searching for details, the amounts remain almost lost in many places.

Most of the community organizations are dormant. The Fund was dissolved but its responsibility hasn’t been transferred to any other authority yet.

The local governments appear indifferent and the federal institutions unaware. Except for some exemplary local governments, the amount appears to be disarray in many others.

Published in Himalkhabar on 4 July 2025