The government has initiated preparations to form a 'Cooperative Regulation Commission' to regulate savings and credit cooperatives. This step comes in response to the increasing number of cooperatives failing to return the savings of the general public. The commission will be established by amending the existing act through an ordinance.
According to sources at the Ministry of Land Management, Cooperatives, and Poverty Alleviation, preparations are underway to transform the National Cooperative Development Board, currently under the federal government, into a commission tasked with regulating, inspecting, and supervising cooperatives with share capital or turnover exceeding Rs 500 million.
Secretary Arjun Prasad Pokharel stated that consultations are ongoing with stakeholders to amend the act. "There is an obligation to bring a law soon to address the problems currently seen in cooperatives," he said, adding that internal preparations are underway.
The amendment will prioritize regulation structure of cooperatives, the establishment of a credit information center, and the implementation of savings and loan security measures.
The government had announced in the current fiscal year's budget its intention to form a separate regulator for monitoring savings and credit cooperatives. Earlier, the ministry had drafted the Financial Cooperatives (Regulation and Supervision) Act, 2081.
Currently, cooperatives are registered and regulated at the federal, provincial, and local levels based on their scope of operations. However, the devolution of regulatory authority to provincial and local levels has resulted in weak oversight, leading to incidents of directors embezzling funds and absconding, while members being unable to recover their savings.
Despite the growing number of cooperatives in financial distress, the government is yet to implement measures to ensure the safety of members' savings. Last year, a task force led by National Planning Commission member Dr Jayakant Raut recommended that cooperatives engaging in large transactions be monitored by the Nepal Rastra Bank in the short term, with the formation of a dedicated regulatory authority as a long-term solution.
Similarly, the 'Parliamentary Investigation Committee on Misuse of Cooperative Savings,' chaired by Surya Thapa, also suggested establishing a regulatory authority to set limits and oversee savings and loan activities of cooperatives.
Previously, the Federal Parliament amended the Nepal Rastra Bank Act, 2058 BS, and the Cooperative Act, 2074 BS, granting NRB the authority to issue directives and standards for regulating, inspecting, and supervising cooperatives involved in savings and loan transactions. NRB was also empowered to regulate and take action against organizations with share capital or transactions exceeding Rs 500 million under these provisions. However, these measures have not been implemented effectively.
