DoC to ban blacklisted persons from running cooperatives

KATHMANDU, JAN 15 -

The Department of Cooperatives, in a desperate attempt to check anomalies in the cooperative sector, is set to introduce a stringent policy that will bar persons blacklisted by the bank and financial institutions (BFIs) from operating cooperatives in the future.

As more cooperatives have landed into trouble due to bad corporate governance practice by the promoters and directors, the regulator has sought to maintain the stringent provision on the eligibility of promoters.

Concerns over the security of public deposits at cooperatives has risen considerably following the failure of  big cooperatives like Guna and Oriental to pay back deposits, and cases of the promoters of small cooperatives like Exim and  Ugrachandi running away by leaving the depositors high and dry.

A study of 133 saving and credit cooperatives by the DoC with support from Nepal Rastra Bank (NRB) also shows several anomalies of bad corporate governance.

“The provision of disqualifying those blacklisted to run cooperative has been made in order to ensure restrict those who have been punished for dishonesty in other sectors from entering the cooperative sector,” said Kedar Neupane, registrar at the DoC . He added that those convicted on fraud charges will also be ineligible to run a cooperative.

According to him, the drafting of the policy is in the final stage and the department will call a stakeholders’ meeting shortly.

The DoC is also introducing a provision of deposit insurance, similar to the one that is in practice in the BFIs. Currently, deposits upto Rs 200,000 of individual accounts at banks and financial institutions are insured by Deposit and Credit Guarantee Corporation (DCGC).  

With the cooperatives accumulating deposits of Rs 139 billon, the DoC believes the provision of deposit insurance would increase the confidence of depositors in the cooperatives. The saving and credit cooperatives collected deposits of Rs 109 billion in the last fiscal year. Of the total 26,500 cooperatives, over 11,000 are saving and credit cooperatives.

“We are also making provision about credit guarantee to ensure recovery of loans,” said Neupane. But he said that the DoC is yet to decide on whether to ask DCGC to guarantee the credit. The cooperatives have lent Rs 134 billion, while saving and credit cooperatives have lending of Rs 94 billion.

Another measure being sought by the DoC is fixing certain ceiling on the interest rate—both deposits and lending—of  the cooperatives.

The DoC monitoring found that some of the cooperatives were charging upto 60 percent interest rate. Neupane said the department would set the interest rate close to the rate offered by banks and financial institutions.

The regulator has also planned to monitor the annual general meeting of the AGM after it was identified that some cooperatives were not following due procedures and were holding AGM without the presence of adequate members. “Out of the measures sought, barring blacklisted from running cooperative and monitoring of AGM can be done instantly,” said Neupane.

Source: The Kathmandu Post