Stakeholders urge to fill the regulation void in microfinance and cooperatives

 Kathmandu, June 15

Stakeholders have suggested for a strict regulation of microfinance and cooperatives sector in order to check the financial anarchy and embezzlement of the hard-earned money of people.

Indicating to a partial void in regulation in microfinance and lack of rein to tame cooperatives for the past many years, they said that the recent events including loan duplication in microfinance, and misuse and personal use of public money deposited in savings and credit cooperatives could erode the trust of people on the entire financial sector.

Speaking at a discussion programme on Monetary Policy for the Fiscal Year 2023/24 organised by the Management Association of Nepal (MAN) in the Capital on Thursday, they indicated to the urgent need of second-tier regulator to supervise and monitor cooperatives.

Budget for the next FY has also promised to form a second-tier institution to address the problems in the cooperative sector.

Economist Dr. Resham BahadurThapa, suggested that the microfinance and cooperatives shouldn't be left unmanaged and in anarchic state. According to him, innovative measures were needed to address the challenges seen in these sectors.

 

Need for second-tier regulator

Minraj Kandel, President of National Cooperatives Federation, suggested immediately establishing second-tier institution to monitor and supervise cooperatives.

According to him, various provisions of the cooperatives act such as credit information centre have not been implemented. "Agricultural cooperatives should be provided with soft loan to promote production and it should be included in the monetary policy of the next fiscal," he said.

However, Dr. Yuba Raj Khatiwada, former Minister for Finance and former Governor of the NRB, said that the cooperatives sector should not be brought under the jurisdiction of NRB's regulation.

He also suggested for a special institution which could be second-tier regulator to regulate the cooperatives sector. "The central bank can help and facilitate this institution in better regulating and monitoring the cooperatives sector," said Dr. Khatiwada who is also the former President of MAN.

He expressed worries that the microfinance sector is left unregulated and unsupervised, and suggested for immediate actions from the banking sector regulators. Microfinance institutions in Nepal have the responsibility of supporting the ultra-poor in livelihood options and thus help in poverty alleviation. They are facilitated with the concessional loans from the class 'A', 'B' and 'C' banks and financial institutions.

 

Support agriculture

Dipendra Bahadur Kshetri, Former Governor of the central bank and former Vice-Chairman of the National Planning Commission (NPC), suggested the NRB to establish a unit to estimate the need of fund needed to be invested in agriculture's various sub-sectors like paddy, maize, pulses and cash crops.

"This would be an important step as it would help to make the economy self-sufficient in some of the agricultural produces," he said while adding that the bank loan on agriculture should reach the farmers/producers in Nepal, not the traders.

 

NRB studying microfinance status

In response, Governor of the NRB, Maha Prasad Adhikari, informed that to address the maladies in the microfinance sector, a committee formed by the central bank is studying the situation. The committee will also offer recommendations to improve the situation.

"The wrongdoers will be punished but blaming the entire microfinance sector is not appropriate. It has empowered women and uplifted ultra-poor population," he said.

Governor Adhikari maintained that it is the responsibility of the central bank to regulate and monitor the sector.

Stating that financial transactions in savings and credit cooperatives are still out of supervision, he expressed worries that if there is a run in cooperatives, no one can control the crisis.

"We feel that the root cause is the investment in real estate," he said.

 

 Banks are over-capitalised

Dr. Khatiwada said that the banks in Nepal are already over-capitalised in comparison to the size of the national GDP, and suggested the BFIs not to increase the capital base as they are already in comfortable situation.

"Give priority to income generation, not asset accumulation, loan mobilisation in speculative business areas should be controlled," he said while adding that it wouldn't be wrong to allow diluting 10 per cent of promoter's shares, with the condition of barring the businesspersons from buying them.

Dr. Khatiwada suggested bringing the spread rate below 4 per cent, not allowing the BFIs to create cartel in determining interest rates. He also said that the NRB should be worried about the inflation rate not the loan mobilisation rate.

Stating that the government has set the limit of bonds in the budget which should be left to the decision of the central bank, he maintained that the government must not try to micro-manage the central bank.

 

'Implement digital currency'

Dipendra Purush Dhakal, Former Governor of the NRB, said that the upcoming monetary policy should be tight as well as facilitative so that it could support the domestic production and business and check the import of unwanted and luxury goods.

He said that merger policy for banks and financial institutions (BFIs) should be continued to reduce their numbers.

According to him, common digital currency should be created and implemented within a year from now. It is necessary to develop the financial sector on a par with neighbouring India.

President of Hotel Association of Nepal, Binayak Shah, said that tourists should be allowed to make their local payments to hotels in local currency.

Bangladeshi and Sri Lankan tourists should be provided with the facility to exchange their national currency in Nepal's local currency. It will be massive help to attract more tourists from the neighbourhood and abroad, he said.

Gyanendra Dhungana, former President of Nepal Bankers' Association, said that BFIs are still unable to meet the target of special sector loan such as the small and medium enterprises (SMEs), and they might need an extension of time to implement this provision.

Similarly, Kamlesh Kumar Agrawal, Senior Vice-President of Nepal Chamber of Commerce, demanded an expansionary monetary policy to protect the private sector.

"Current trend of high interest rate wouldn't support the expected growth in the economy. So, the spread rate should be brought down to 3.5 per cent," he said.

Anal Raj Bhattarai, coordinator of Banking Committee at the Confederation of Nepalese Industries, said that monetary policy should be formulated keeping in mind the constraints and demands of a least developed and landlocked nature of the country.

 Published in The Rising Nepal daily on 16 June 2023.