Editorial

Watch out

  • Govt must take stern measures to protect deposit parked at cooperatives

Apr 10, 2018-Savings and credit cooperatives that have made speculative investments in stocks in the hopes of making quick bucks are on the verge of going bust as share prices have plunged in the last few months. Although names of cooperatives that are at risk of facing a financial crisis have not been revealed, experts say they could lose huge amounts of money due to their exposure to the secondary market.

The newly enacted Cooperative Act has barred savings and credit cooperatives from investing in stocks, fixed assets of other companies and construction of infrastructure. Cooperatives are also barred from disbursing loans to non-members. Yet 95 percent of savings and credit cooperatives are not following these rules, according to the National Cooperative Federation. It is high time the government tightens the noose around these units to protect the interests of small depositors who could lose billions of rupees if the cooperatives become insolvent.

Cooperatives are autonomous associations owned, controlled and operated by a group of people living in a certain area. Each member of the cooperative has a stake in the entity; members can tap into the pool of capital to meet their needs. Many say cooperatives need not be regulated by the government, as most of them are not profit-oriented. But cooperatives in Nepal have not been able to regulate their businesses on their own, prompting the government to recently introduce tougher laws.

Nepal currently is home to over 34,000 cooperatives, of which more than 13,500 are savings and credit cooperatives. These savings and credit cooperatives have collected over Rs300 billion in deposits. What is worrying is that many of these cooperatives operate as banking institutions and even provide loans to non-members and invest in risky areas such as the stock market and in real estate. This should be stopped.

Savings and credit cooperatives, no doubt, have inculcated saving habits among Nepalis, as they are ubiquitous and send representatives to the doorsteps of clients to collect deposits. So, a big pool of depositors of cooperatives is small traders and entrepreneurs, like street vendors and owners of mom-and-pop stores, small beauty parlours, clothing stores and motorcycle workshops. If cooperatives go bust, it is these small traders and entrepreneurs who will lose hard-earned money. So, the government must carefully monitor activities of these financial units.

Earlier in 2013, at least 155 cooperatives a faced financial crisis, inflicting losses of over Rs5 billion on depositors. The problem surfaced because of unsound lending practices, exposure to the real estate market and involvement of promoters in embezzlement. Possibility of such a mishap taking place again cannot be ruled out, as the government has not formulated regulations to implement provisions of the new Cooperative Act. The government has also failed to clearly designate authorities at the local level to monitor cooperatives.

It is time the government takes stern measures and introduces strict guidelines to protect the people’s deposits.

Published: 10-04-2018 08:22

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