KATHMANDU, Sept 25: Shankar Man Shrestha, CEO of Rural Microfinance Development Center (RMDC) and a well-known figure in the country´s microfinance sector, has been charged with misappropriating millions of rupees from the microcredit institution by secretly raising his remuneration and allocating a huge amount for retirement benefit.
The misdeeds of Shrestha, who considers himself one of the pioneers of the microfinance movement in Nepal, were revealed during an on-site inspection conducted recently by Nepal Rastra Bank, the banking sector regulator.
In one of the instances of misappropriation, Shrestha was found to have breached the Rastra Bank guideline on remuneration for chief executives of financial institutions of all categories and pocketed Rs 1.28 million in excess.
“He accumulated the amount in the form of dearness allowance and grades since September 2011 when the remuneration guideline was first introduced. And he did this without informing the board of directors,” a person privy to the issue told Repulica.
As per the guideline, chief executives should not be entitled to annual remuneration in excess of 5 percent of the total staff expenses of the past three years or 0.025 percent of the gross assets of the past year.
Going by this rule, Shrestha should not be getting more than Rs 115,000 per month, the source said. “But he is currently earning around Rs 197,000 per month.”
Shrestha, on the other hand, said: “I have done everything in accordance with the board decision and have not breached company rules.” When asked how much he is receiving every month, he only said he has to check the amount with the company´s finance department.
In another instance or misuse of company funds, Shrestha was also found to have allocated around Rs 4.15 million to pay himself off after his retirement scheduled for mid-July next year.
“This amount was collected till mid-July last year. And he was hoping to expand the retirement pot by around Rs 550,000 and take home approximately Rs 4.7 million at the time of bidding farewell to the company,” the source said.
The regulator probably would not have raised this issue, had the provision of payoff package been included in Shrestha´s contract paper, which gets renewed every four years. “But since there is no such provision, the act goes against the company´s policy,” the source said.
RMDC, which is jointly owned by 13 commercial banks, Nepal Rastra Bank, five rural development banks, Deposit and Credit Guarantee Corporation, Nirdhan Utthan Bank and the World Bank´s IFC, is one of the leading wholesale lenders for microfinance institutions in the country.
Many attribute the success of RMDC to Shrestha, 65, who has been at the institution´s helm since August 1999. Shrestha, who also served at the Agricultural Development Bank Limited -- Nepal´s largest commercial bank in terms of capital -- for 25 years, holding top management positions like deputy general manager and chief of loan department, is also credited for keeping financial health of the microfinance institution sound throughout the years.
“But as he entered the twilight of his career, Shrestha started succumbing to greed,” the source said. “Otherwise a seasoned banker like him would not have committed such mistakes.”
Another instance of Shrestha surrendering to greed was his decision to distribute dividends to shareholders by going against the law.
The institution had given away dividend of Rs 41.6 million to its shareholders from profits generated till 2009/10. This act goes against the Bank and Financial Institutions Act as it bars all financial institutions that have not floated shares among the public from enjoying such privilege.
“I don´t think we did anything wrong here as we had gotten the Rastra Bank´s approval to distribute our earnings,” Shrestha said.
What Shrestha said is true and RMDC alone should not be blamed for the mistake. But this instance of the regulator acting in collusion to breach its own legal standards has raised questions about the integrity and professionalism of the authority formed to regulate all banks and financial institutions.
“At that time Bir Bahadur KC and Narahari Acharya, assistant and deputy directors at Nepal Rastra Bank, respectively, had warned against endorsing the controversial proposal. However, the then deputy governor Bir Bikram Rayamajhi and Khem Narayan Dhakal, director of microfinance department, decided to go ahead anyway,” the source said.
Now, the Commission for the Investigation of Abuse of Authority, the corruption watchdog, has asked the RMDC management to return the dividend with interest as soon as possible.
Ashoke Rana, RMDC chairman and CEO of Himalayan Bank, could not be reached for comments.