Stakeholders have called for a speedy passage of the new Cooperative Act, stressing that it should include merger policy to streamline the rapidly proliferating savings and credit cooperatives amid increased incidences of complex problems.

They said that lack of proper regulation had led to an increase in financial crime.

Speaking at the fifth annual general meeting of the Nepal Cooperatives Journalists Society held on Friday, Deputy Prime Minister and Minister for Cooperatives and Poverty Alleviation Chitra Bahadur KC said that the act was close to being completed, and that it would be sent to the Law Ministry for its examination.

“Once the act is endorsed, it will address the problems being faced currently like duplication of membership besides facilitating mergers,” he said. “Cooperatives are mushrooming in the country, and if the government does not act in time, the result can be severe as it can affect a large number of people.”

There are 33,000 cooperatives operating in Nepal. Among them, 11,000 are savings and credit cooperatives. They hold more than Rs150 billion in deposits of the general public.

A report published by Nepal Rastra Bank shows that most of the savings and credit cooperatives are concentrated excessively in urban areas, and have invested heavily in real estate and other risky areas. The report shows that many cooperatives have not maintained effective management of assets and liabilities, which has posed a risk to long-term liquidity at a time when they have a low liquidity level.

The central bank also said that the credit-to-deposit ratio of cooperatives was high, and that the interest rates on deposits and loans were not being maintained as per its directive. Their credit-to-deposit ratio is 92.3 percent, which means they have little liquidity available. These factors could pose a risk to the savings of the general public.

The many cases of embezzlement seen in the sector has been blamed on weak legal provisions. Although the government has moved to replace Cooperative Act 1992 with a new one more in tune with the times, progress has been very slow. Deputy Prime Minister KC said that more work needed to be done on the draft act, and that an intensive study of the problems in the sector would be carried out before finalising it. A high-level commission formed to probe troubled cooperatives under Gauri Bahadur Karki two years ago has also urged the government to insert a provision for stricter punishment in the new act.

According to the commission’s report, 150 troubled cooperatives had stolen Rs11 billion from 12,962 people.  

Rishi Raj Ghimire, president of the Nepal Federation of Savings and Credit Cooperatives Union, said the problem in savings and credit cooperatives could be largely addressed by merging them.

“It will help avoid duplication of membership too,” said Ghimire, adding that a separate act on savings and credit cooperatives was needed.