Co-ops misbehaving in lack of strong laws: DoC

- POST REPORT, Kathmandu

Sep 5, 2014-

A large number of cooperatives have been found to be flouting regulation by offering various schemes to attract members, said the Department of Cooperatives (DoC) on Thursday.

The cooperative standard forbids cooperatives from carrying out promotional campaigns to lure customers besides conducting banking services like providing overdraft facilities.

“Many cooperatives have even been offering unusually high interest rates and bumper prizes to attract deposits from the public,” said Bishnu Hari Paudel, registrar of the department, speaking at a programme organised by the Cooperatives Journalists’ Society Nepal.

However, the department has been powerless in taking action against these offending cooperatives because there are no laws. “Lack of stringent laws, manpower and other kinds of resources prevents the department from acting instantly against such cooperatives,” Paudel said.

The government has been drafting a new Cooperative Act to give the department more powers, but the work has been progressing slowly. Paudel said that there had been many complaints from depositors against cooperatives.

Earlier, a high level probe panel led by former Special Court Chairman Gauri Bahadur Karki had identified 130 cooperatives as being troubled and they had been ordered to clear their combined liabilities amounting to Rs 11 billion.

Since creating new laws might take a long time and instances of bad governance among cooperatives has been rising, the Ministry of Cooperatives and Poverty Alleviation (MoCPA) has proposed to establish a rehabilitation committee to deal with cooperatives in bad shape by amending a few clauses in the existing Cooperative Act 1992. Paudel said that the establishment of the committee could provide some respite to depositors of troubled cooperatives.

Meanwhile, Rishi Raj Ghimire, president of the Nepal Federation of Savings and Credit Cooperative Unions, stressed the need to implement the PEARL principles for effective monitoring of mainly savings and credit cooperatives.

“The principle mentions maintaining an adequate reserve fund, implementing a risk based monitoring system and assessing whether cooperatives have been fixing abnormally high interest rates in financial transactions.”

Ghimire also stressed the need to help cooperatives merge to control malpractices in the sector. “However, the regulator should approve merging only cooperatives from the same geographical area so that there will not be any conflict of interest after the union,” he added.

Meanwhile, speaking at the programme, stakeholders said that there was little investment by cooperatives in the agro production business due to lack of access to markets.

“Despite the large potential for commercialization of the farm sector through cooperatives, farmers are reluctant to do so due to lack of markets for their products,” said Shreedhar Gautam, secretary at the MoCPA. “Branding of cooperatives’ products could help farmers to promote the agricultural business besides minimizing malpractices seen in the cooperative movement,” he said.

As of the last fiscal year, there were more than 31,000 cooperatives, among which a majority are savings and credit cooperatives based in urban areas. “Those involved in production activities are also doing business on a very small scale,” said Gautam, adding that there was a need to attract cooperatives to invest in big projects like hydropower, communication, tourism and commercial farming.

Deepak Koirala, president of the Junar Central Cooperatives Association, said that the strong influence of intermediaries in government-run wholesale markets had been hurting the cooperative sector. “The problem of intermediaries exist even in government-run wholesale markets, due to which people hesitate to invest in production-related cooperatives,” he said.

According to the statistics of the department, cooperatives hold deposits amounting to Rs 163 billion and their loan issue comes to Rs 159 billion.

Koirala said that cooperatives had been investing very little in the production business despite their massive cash reserves. He also accused operators of cooperatives of using them as a platform for doing business.

Published: 06-09-2014 09:25

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