Co-ops running wild due to lack of strong laws: Dept

KATHMANDU, APR 23 -

The Department of Cooperatives (DEoC) said on Tuesday that a number of cooperatives had been engaging in malpractices despite the measures taken to prevent them. The regulator said that lack of a strong act to regulate co-ops had made the department’s efforts ineffective.

The common problems seen among particularly savings and credit cooperatives include conducting transactions with non-members, running cooperatives like a family business with board members from a single family, offering high interest rates to lure customers, conducting inter-cooperative lending and using market representatives to attract people to deposit their money in their respective cooperatives.

“These problems were revealed during the DEoC’s inspection of 350 cooperatives,” said DEoC Registrar Kedar Neupane. During this fiscal year, the department plans to supervise 500 savings and credit cooperatives which carry out transactions of more than Rs 50 million annually.  “A number of these cooperatives are still attempting to attract clients by offering a high interest rate and displaying large signboards,” said Neupane. “Similarly, other co-ops have been sending out their marketing staff to pressure people to become their clients,” he added.

The DEoC has asked cooperatives to maintain a maximum spread rate of 6 percent. However, most of them have not been following its orders. “Many cooperatives have been targeting people like those returning from foreign employment or those who have a large business turnover by offering very high interest rates,” said Neupane.

Earlier, two panels, one formed under the Finance Ministry’s Joint Secretary Baikuntha Aryal and the other formed under Nepal Rastra Bank’s Deputy Governor Maha Prasad Adhikari, had pointed to similar problems in the sector.

A high-level commission formed by the Ministry of Cooperatives and Poverty Alleviation had identified 130 troubled cooperatives. They have been blamed for embezzling over Rs 9 billion of more than 12,000 people.

Despite the growing number of cases of problematic cooperatives, people still see the business as being similar to finance companies which are licensed by Nepal Rastra Bank, said the department.

“As these cooperatives take in members by charging just Rs 100, most of the stakeholders do not feel a sense of ownership towards cooperatives,” Neupane. “As a result, they don’t show concern towards the financial condition, annual general meeting and the daily operations of the cooperatives,” he said. A single person having a say over the business of a cooperative is a major threat for the sector, he added.  

Neupane expressed his helplessness to take action against wrongdoers due to lack of a legal framework and inadequate resources with the department. “The absence of an effective act along with other legal provisions has made our efforts meaningless.” The Cooperatives Act 1992 talks about promoting the number of cooperatives but has little to say about regulating them.

With the government showing concern over the business of cooperatives of late, there have not been adequate efforts to bring them into line.

Donor agencies and international organisations have also started showing concern at the irregularities seen in the sector.  

A delegate of the International Monetary Fund (IMF) on Tuesday also urged the government to upgrade the legal framework related to the financial sector. It has asked the central bank to play an effective role. “Nepal Rastra Bank should not hesitate to exercise its corrective and sanctioning powers to regulate the unsupervised and rapidly growing cooperatives,” said Alexander Pitt, mission chief of the Asia and Pacific Department at the IMF.

Highlighting the need for stricter supervision, Pitt said the IMF would soon be providing a set of recommendations to the government to regulate the sector.

Source: The Kathmandu Post