Kyrgyzstan’s Banking Sector Rocked by Fraud Cases Worth Millions

Crackdown on Cooperatives Amidst Widespread Fraud

The Kyrgyz government has launched a crackdown on cooperatives, a Soviet legacy that continues to play a significant role in the country’s construction industry. However, without adequate guarantees for members, these cooperatives have been plagued by fraudulent activities, causing losses worth millions of euros.

Ikhsan Grupp Ltd: A Case Study

In recent months, investigations have led to the arrest of two managers and one is still at large in connection with the Ikhsan Grupp Ltd housing cooperative. The case, opened in 2021, has resulted in losses of 701 million som (approximately 7 million euros).

Multiple Investigations Underway

Several arrests have been made in recent weeks, including that of the founder of the Financial Cooperative Islamic. The government has approved new laws aimed at regulating the financial market and defending people’s rights in purchasing real estate from cooperatives.

Cooperatives: A Legacy of Soviet-Era Collectivism

Cooperatives are a legacy of Soviet-era collectivism, with around 6,500 active in Kyrgyzstan. Most are agricultural or commercial cooperatives, but about 1,000 are non-commercial, including 162 housing cooperatives that promise members a home.

Lack of Transparency and Accountability

However, these cooperative boards often operate without transparency, issuing membership cards without guarantees and allowing members to risk their own money. The new law requires greater transparency in economic transactions, with all transfers recorded on an electronic site and compiled into a special register.

Checks on Cooperative Activities Prior to the New Law

The checks also concern the activities of cooperatives prior to the approval of the new rules, including cases like Ikhsan and Islamic Cooperative, which claimed to comply with Islamic finance principles but failed to do so. The law prohibits religious denominations from being included in commercial activities.

Registration of Building Cooperatives Drops Dramatically

Since the crackdown was launched, registration of building cooperatives has dropped dramatically, with only six registered last year. Deputy Justice Minister Orozbek Sydykov is confident that the “plague of fraudulent cooperatives” has been resolved, leaving no room for further distortions of the law.

A Role for Cooperatives in the Future

However, he also emphasized the importance of not completely excluding the system of cooperatives, which can still play a role in certain sectors where citizen initiative must be encouraged.