Editorial
Runaway cooperatives
The law should focus on making cooperatives membership-driven and geographically limitedNepal’s cooperative sector has been in a mess for several years now. Promoters of cooperatives have embezzled billions of rupees, leaving small depositors in the lurch and depriving them of their hard-earned money. According to the High Level Commission to Probe Irregularities in Cooperatives, depositors have lost over Rs 11 billion; half of it was embezzled by one cooperative alone, Oriental Cooperative. Years of little or no regulation have led to the mushrooming of cooperatives, totalling over 32,000 as of fiscal year 2071-72. The near-absence of oversight has also allowed cooperatives to get sidetracked from their very principle: membership-based, catering to economic empowerment of a particular community and limited to a certain geography.
As a result, many of the cooperatives today act much like banks, minus the regulation. According to the Department of Cooperatives, the total deposit of cooperatives in the fiscal year 2071-72 totalled over Rs200 billion, which is 11 percent of the combined deposits of banks and financial institutions.
There have been several attempts to rein in the runaway cooperatives by introducing stringent laws, but like many other regulations, interest groups often got involved in drafting these laws. Many of the central level members of most political parties are involved as promoters of several cooperatives. They have stifled meaningful debate or the process to enact purposeful laws to regulate the sector.
The latest draft of the new Cooperative Bill floating around promises a strict penalty for those involved in misappropriating depositors’ money. A 10-year jail term has been proposed for the embezzlers.
While the resolve of the Ministry of Cooperative and Poverty to address the malaise, as expressed in the draft law, is commendable, it will only see the light of day if political leaders do not meddle in it. So it would be too early to celebrate it at this stage. Whatever law Parliament passes at the end of the day needs to address some basic concerns.
First, the new law needs to restore cooperatives as a membership-driven institution. Big cooperatives have used membership as a ruse to attract deposits from everyone. Second, cooperatives should cater to a particular community in order to support economic empowerment. Third, they need to have a geographic restriction. Some have suggested that cooperatives need to be limited to one district at most; this is for experts to work out. Fourth, there should a provision for a strong regulatory body that has the power to recover embezzled or lost amount by seizing personal properties of the embezzlers. And finally, the new law needs to offer big cooperatives a one-time opportunity to convert into a bank to avoid another crisis.