Rs. 302 bn deposits in co-ops at risk in absence of regulation

Kathmandu, Oct. 6:

Cooperatives across the country were mobilising Rs. 302 billion in savings from 6,305,581 members, 51 per cent female, and had extended loans of Rs. 273 billion by the end of the Fiscal Year 2016/17.

But, the sector posed a serious threat to the financial sector stability in the country due to a poor regulatory mechanism.

In the last decade, about Rs. 13 billion in public money has been embezzled by the operators of the cooperatives. It includes Rs. 5.5 billion of about 12,000 account holders of the Oriental Cooperative alone.

A probe commission led by the former Special Court Judge Gauri Bahadur Karki found in 2013 that 12,962 people had claimed of losing Rs. 7.6 billion in deposits and Rs. 2.4 billion in interests through 150 cooperatives.

Despite continuous demands and pressures to the government to form a powerful regulatory mechanism to govern the cooperatives sector, there had been little progress.

Though the banking sector regulator, Nepal Rastra Bank (NRB), had included the cooperatives regulatory issues in its Monetary Policy, there was no regulation and prudential measures for the sector that mobilised more than Rs. 73 billion of more than 34,512 people.

The Department of Cooperatives (DoC) statistics show that the capital in the cooperatives in the country has increased by 73 times in a decade and reached Rs. 73 billion in FY 2016/17 from Rs. 1 billion in FY 2006/07, while the number of cooperatives reached 34,512 from 9,720.

Cooperatives, one of the three pillars of Nepali economy, with the public and private sectors, as mentioned in the constitution, has employed about 61,000 people. 

The constitution has a provision that the cooperatives can be regulated jointly by the federal and provincial governments, provincial or local governments or local governments alone. This is confusing, said Deepak Prakash Baskota, founder chairman of the National Cooperatives Federation.

“The DoC has already handed the responsibility to the local governments but the latter have neither idea nor priority for the cooperatives regulations. They are engaged with other issues of governance,” he said.

He suggested for a joint-monitoring of government and cooperatives association and also said that the regulation should be with the federal government until the local governments are capable of handling the cooperatives.  

According to former Registrar of the DoC Sudarshan Prasad Dhakal, the lack of deposit guarantee fund or insurance is one of the biggest problems in the cooperatives sector.

“Even after this sector has expanded its foothold to every corner of the country, it lacks the central liquidity facility, data integrity and quality of information,” he said.

A large number of cooperatives have weak or no Management Information System (MIS) and public as well as the operators have very little education and awareness of the co-operative model of business.

Dhakal said that as the central bank does not recognise the cooperatives, they lack their identification as well. However, new Cooperatives Act 2017 has a provision that the cooperatives banks will be regulated by the NRB.

Speaking at an interaction in the capital on Friday, Governor of the Nepal Rastra Bank (NRB) Dr. Chiranjibi Nepal warned that the loosely regulated cooperatives could be the biggest threat to the financial stability in the country.

“Saving and deposit cooperatives and the non-banking financial institutions have posed unseen risks to the financial sector stability in Nepal,” he said.

Cooperatives in Nepal

Title	2006/07	2016/17	Growth/times
Cooperatives	9,720	34,512	3.5
Members	1.2 million	6.3 million	5
Capital	Rs. 1 billion	Rs.73 billion	73
Saving	Rs. 20 billion	Rs. 302 billion	15
Employee	15,000	61,000	4

Source: Department of Cooperatives

Published in The Rising Nepal daily on 7 October 2018.