Mismanagement killed a handmade paper factory in Bajhang which once stood as an example of a successful community enterprise, and helped to raise local living standards in Nepal's impoverished far west.

Hundreds of locals have been out of work since Malika Handmade Paper Company, once famed for its sustainable resource management practice and known as Asia’s first community handmade paper factory certified by the Forest Stewardship Council, shut down two years ago.

The factory was established as an innovative model enterprise two decades ago. The Forest Stewardship Council is an international member organisation that works for environmentally adapted, socially responsible and economically viable use of the world's forests.

After the plant failed, its infrastructure, including various equipment worth millions of rupees, have been left unattended for a long time; and many of them have developed rust.

Some machines were stolen while the rest have started to rust, according to locals of Jayaprithvi Municipality-1. The factory, located at Hamarsain about 3 km from the village, has been overgrown with weeds; and the building's timber stolen.

The ponds constructed to collect water to make handmade paper have collapsed, and the wooden frames used to dry the paper have been burned as firewood by locals. Drinking water pipes, lokta cooking drums, the caustic soda used in making paper, and other chemicals stored in the factory have also disappeared.

Gagan Bahadur Singh, ward chairman of Jayaprithvi Municipality and managing director of Malika Handmade Paper Company, admitted that the factory collapsed due to mismanagement. "I was the ward chairman and could not devote much time to the factory," he said. He added that other responsible people also did not work honestly.

Locals said the operators had resumed paper production for a few days after they received financial help from some organisations. Around 300 households own shares in Malika Handmade Paper Factory. Consumers said that its accounts had not been audited for the last 18 years.

Lokta plant, a raw material used to make handmade paper, is found in abundance in the district. Once the centre of employment for locals, the factory grounds have turned into a sheep pasture, and the building is being used as a toilet by the shepherds.

More than Rs10 million invested by locals and donor agencies has gone to waste. The factory was established in 1999 through the initiative of locals of the then Kailash village development committee and the Asian Network for Sustainable Agriculture and Bioresources, a non-governmental organisation committed to biodiversity conservation and livelihood improvement in South Asia.

The organisation had donated Rs500,000 worth of equipment and imparted technical know-how to the people to produce lokta paper through environmentally adapted, socially responsible and economically viable use of the forests.

Since the factory opened, it has provided jobs to many locals and supported the people of Pimi village financially. Pimi is located in a remote part of the district where the majority of residents are economically backward.

In 2007, the factory became well known after it was certified by the Forest Stewardship Council as the first community managed factory in Asia to operate environmentally adapted, socially responsible and economically viable use of the forests.

According to locals, many people and representatives of business organisations from Humla, Mugu, Jumla, Dolpa and Dolakha districts used to come to the village to observe the factory. It gained popularity in a short span of time as a successful community factory.

Since its inception, the Asian Network for Sustainable Agriculture and Bioresources has invested Rs5 million under various headings. Aveda, a United States-based beauty care company working in herbal management, also provided Rs1 million to the factory.

Himalayan Biotrade, a company engaged in Nepali herbs trade, supported the company with Rs500,000, and a multi-stakeholder forestry programme helped it with a Rs1.3 million grant.

“More than Rs10 million has been spent on the factory,” said Govinda Kami, a local and former employee of the company. “The factory collapsed due to mismanagement. It not only provided employment to locals, but also became the pride of the district and the country," Kami said.

"It started to fall apart when a small number of stakeholders started taking undue advantage."

Bijay Singh, another former employee of the factory, said it initially employed only 10 people, but soon became a big hirer in the village. Local women used to earn Rs500 to Rs700 daily by collecting the raw material lokta.

“From women to transport entrepreneurs, the factory provided work to more than 300 people directly and indirectly. After it closed, a major source of income for locals was gone,” he said.

"The factory would operate for a few days whenever it received a grant from some organisation. After the money was gone, the factory would shut down again," he said. “It was once a source of livelihood for many people.”

The handmade paper produced by the factory was exported to Japan, South Korea and Germany. The company's shareholders received dividends for only one year, locals said.

"The factory was making a profit two years after it launched. It distributed bonuses ranging from Rs1,000 to Rs10,000 per family, depending on the number of shares," said Dhwaj Bahadur Singh, a shareholder. "After that, we never got a bonus."

Ward chairman and managing director Singh said about the company's plans, “We are seeking help from various organisations. We hope the factory will resume operations in the near future.”