Introducing sweeping changes to the regulation of cooperatives, the government has decided to establish a separate regulator.
On Sunday, December 29, President Ram Chandra Poudel issued an ordinance to amend the Cooperatives Act, bringing significant reforms to the regulatory framework, particularly for savings and credit cooperatives.
The ordinance establishes the National Cooperative Regulatory Authority (NCRA), tasked with overseeing cooperatives. The authority will regulate key activities such as registration, supervision, monitoring, and reporting.
In response to the growing crisis of savings and credit cooperatives failing to return public savings, the government decided to amend the Cooperatives Act and create a second-tier regulator for these cooperatives.
The governing board of the NCRA will consist of five members: a Joint Secretary from the Ministry of Cooperatives, a representative from Nepal Rastra Bank, a chartered accountant, an expert member and a professional with at least 10 years of experience in banking or cooperatives.
Read: Systemic Failure in Cooperatives
A recommendation committee, led by the Chairman of the Public Service Commission, will oversee the appointment of the Authority’s chairman and expert members.
Under the amended Act, registration of savings and credit cooperatives will now be limited to the local level, with standards for registration and regulation set by the NCRA. Previously, cooperatives were also registered by provincial and federal governments.
The amendment to the Cooperative Act establishes a structured framework for setting savings limits based on the geographical scope of a cooperative's operations.
For cooperatives operating across multiple provinces, a maximum deposit of Rs 5 million per individual is permitted. Those operating across more than one district are allowed a maximum of Rs 2.5 million per person, while cooperatives confined to a single district are restricted to Rs 1 million per person.
To ensure compliance, cooperatives with savings exceeding these specified limits are required to adjust their deposits within two years.
Read: Proposal to Cap Individual Deposits in Cooperatives at Rs 2.5 Million
The ordinance mandates that cooperatives require income source disclosure for deposits exceeding Rs 1 million. They are strictly prohibited from accepting savings without a disclosed source. Previously, there was no set limit on personal savings in cooperatives as the Cooperative Act allowed each cooperative to specify the savings limit in its own bylaws.
The government has introduced a provision to cap personal savings, concluding that directors had acted arbitrarily with the deposits of ordinary people who placed their money in cooperatives seeking high interest rates. This move also aims to address the tendency to deposit illegally earned money in cooperatives.
The ordinance imposes a cap on the dividend distribution of cooperatives, reducing the maximum allowable dividend from 18% to 15% of share capital.
Additionally, new provisions set term limits for directors, restricting individuals to a maximum of two terms. Furthermore, a person is prohibited from holding directorial positions in more than one cooperative of the same nature.
Read: Govt to form Second-Tier Regulator of Cooperatives through Ordinance
The ordinance mandates that cooperatives integrate with the Credit Information Bureau. Cooperatives primarily engaged in savings and loan transactions are required to obtain membership in the bureau, established under prevailing law, and share information on their savings and loan activities. Additionally, cooperatives must report loan transactions exceeding Rs. 1 million to the Credit Information Bureau.The savings and credit cooperatives must become members of the Deposit and Credit Guarantee Fund.
To declare a cooperative as problematic, a complaint from at least 25 percent of its members will be required. Previously, if 25 members complained to the Registrar about the non-return of their savings, an investigation could be initiated, and a recommendation could be made to declare the cooperative problematic.
Under the new provision, the authority itself will make the recommendation for such a declaration.
The Management Committee of Problematic Cooperatives is authorized to form separate expert teams to address issues in crisis-ridden cooperatives. The committee will define the duties and powers of each expert team during its formation, and a dedicated team can be established for each problematic cooperative.
When returning savings from a problematic cooperative, priority will be given to amounts up to Rs 500,000. Additionally, the Act allows the management committee to apply to the court for the release of assets frozen due to lawsuits or other reasons.
Read: Government’s Plan to Return Savings from Problematic Cooperatives ‘Not Feasible’
Read: Recovery of Funds from Cooperatives Unlikely as their Liabilities Exceed Assets
All expenses incurred in managing the assets of a problematic cooperative will be covered by the assets of the respective organization.
Key Provisions:-
• Formation of the National Cooperative Regulatory Authority
• Cooperatives must disclose the source of funds for deposits exceeding Rs 1 million.
• Loan transactions above Rs 1 million must be reported to the Credit Information Bureau.
• The personal savings and loan limit for cooperatives varies by scope of operations: Rs 1 million for cooperatives operating within a single district, Rs 2.5 million for cooperatives operating across multiple districts and Rs 5 million for cooperatives operating across multiple provinces.
• First priority must be given to returning savings of up to Rs 500,000 for crisis-ridden cooperatives.
