The government has reinstated the authority to regulate savings and credit cooperatives to the federal government after six years. The move comes after local and provincial authorities failed to effectively monitor financial activities, increasing systemic risks. By amending the Federal Cooperative Act 2017, the government has entrusted the National Cooperative Regulatory Authority with the responsibilities for regulation, monitoring, and supervision of cooperatives primarily dealing in savings and credit.
In 2017, the federal government decentralised the registration and record-keeping of cooperatives based on jurisdiction, assigning responsibilities to local and provincial levels. Cooperatives operating within a single local unit were placed under local governments, while those spanning multiple local units or provinces fell under provincial or federal jurisdictions.
Although local and provincial authorities began drafting separate laws to register and monitor cooperatives, weak oversight led to widespread issues in savings and credit cooperatives. Consequently, the federal government, through an ordinance, reclaimed the authority for stricter monitoring.
The Asia Pacific Group (APG), a regional anti-money laundering body, highlighted poor regulatory mechanisms, weak institutional governance, and heightened money laundering risks in Nepal’s cooperatives. This prompted increased pressure on the government to establish a specialised regulatory body. The government, which had committed to addressing these issues in policy and budgetary statements, expedited the ordinance to amend the Cooperative Act ahead of APG’s upcoming progress review in January.
In a related development, Nepal pledged at the Financial Action Task Force (FATF) plenary in June to amend various laws to address APG's concerns. The amendments include imposing limits on savings and placing cooperatives with annual transactions exceeding Rs 500 million under Nepal Rastra Bank's regulatory purview.
The ordinance transforms the existing National Cooperative Development Board into a regulatory authority, granting it oversight of savings and credit cooperatives. It also introduces savings limits based on cooperative categories: Rs 5 million, Rs 2.5 million, and Rs 1 million for national, provincial, and district-level cooperatives, respectively. Additionally, an individual can now hold membership in only one savings and credit cooperative.
Critics, including cooperative activists, have expressed concerns over savings limits, calling them restrictive and contrary to autonomy of cooperatives. However, Secretary Arjun Prasad Pokharel of the Ministry of Land Management, Cooperatives, and Poverty Alleviation argues that such limits are necessary to mitigate risks of money laundering and safeguard members' savings. He also assured that provisions could be revised if challenges arise during implementation.
The ordinance mandates cooperatives to join the Credit Information Bureau and the Savings and Credit Protection Fund. These measures aim to enhance deposit security and enforce penalties for loan defaults.
The move to strengthen regulations follows growing public unrest over delayed refunds from problematic cooperatives. With cases reaching the Supreme Court, the government faces mounting pressure to address ongoing issues. Pokharel remains optimistic, stating that the authority's enhanced role will prevent future crises and protect members’ deposits.
As of 2017, Nepal had 34,512 cooperative institutions, with 29,000 under local governments, 5,000 under provincial governments, and only 150 under federal jurisdiction. The newly established regulatory authority will coordinate efforts with local and provincial registrars to enforce the standards effectively.
