The Nepal Rastra Bank (NRB) has introduced a draft of directives aimed at regulating the savings and credit transactions of cooperatives. The central bank has come up with a proposal to tighten the screws on cooperatives after the government issued new laws for the management of the cooperative sector through an ordinance.

Unveiling the draft titled "Directive and Standards for Cooperative Organizations Involved in Savings and Credit Transactions" on Monday, the central bank said the new standards were introduced with the objective of promoting transparency and financial stability in the sector.

The proposed directive outlines key provisions requiring cooperatives to collect savings exclusively from their members, cap savings collection based on their operational scope, tighten loan disbursement practices, and focus on investments in productive sectors.

The new guidelines have fixed the deposit collection limit at 15 times the organization's primary capital fund, and borrowing from banks and financial institutions is restricted to a maximum of 5% of total assets or 100% of the capital fund, whichever is lower.

Additionally, cooperatives are required to disclose the source of funds when members deposit more than Rs 1 million in savings accounts. Deposit collection is further capped at Rs 1 million per member for cooperatives operating within a single district, Rs 2.5 million for those with multi-district jurisdiction, and Rs 5 million for organizations with wider operational scopes.

The draft also tightens loan disbursement rules. Cooperatives can only extend loans to members who have maintained membership for at least three months. A single member can borrow up to 15% of the organization's primary capital fund. Loans without collateral are capped at five times a member's savings or Rs 300,000, whichever is lower. Additionally, cooperatives must secure loans without collateral with guarantees provided by deposits from at least two members. Directors are prohibited from taking loans beyond the amount secured by their own savings, ensuring accountability within the organization.

The draft also includes provision to address investment practices. Investments in real estate are limited to 25% of primary capital or 50% of the reserve fund. The directive further mandates that at least 50% of total loans must be allocated to productive sectors such as agriculture, industry, and businesses.

For loans secured with immovable property, the draft sets specific limits, allowing cooperatives to issue loans up to 50% of the collateral value in metropolitan and sub-metropolitan cities, and up to 60% in municipalities and rural areas. The directive also includes provisions for loan restructuring and rescheduling to better manage financial risks and ensure the stability of the sector.

The NRB has invited stakeholders to provide feedback on the draft by February 12. The proposed standards aim to eliminate risky practices, such as the collection of savings from non-members, and ensure that cooperatives adhere to disciplined and transparent financial practices. These measures are expected to bring significant improvements to the cooperative sector, fostering long-term sustainability and growth.