Guv to co-ops: Be creative and keep up with the times

KATHMANDU, MAR 28 -

Nepal Rastra Bank Governor Yuba Raj Khatiwada said that cooperatives needed to be innovative and design new products as per market demand.

Presenting a paper at a programme organised on the sidelines of the First Cooperative Congress, he said that cooperatives should be ready to work with difficult geography, subsistence agriculture and socially excluded communities.

Most of the more than 29,000 cooperatives in the country are concentrated in urban areas. According to the Department of Cooperatives, more than 5,000 cooperatives are crammed in the Kathmandu valley.

“Cooperative members require to possess literacy, orientation to business activities or enterprises and financial literacy,” said Khatiwada. “It will lead to maintaining a proper accounting system and boosting knowledge of information technology to use in the business.”

The cooperative movement has been the key factor in reducing poverty. Despite this fact, the sector has failed to attract donor agencies. Khatiwada said most donors were either ignorant of or indifferent to cooperatives. “Some of them consider the sector as a political agenda while others see it as being against a market-led development strategy,” he added. “As a result, cooperatives have failed to create its space in inclusive growth, poverty reduction, trade and development and social protection strategies.”

Khatiwada said that a number of cooperatives had gotten into trouble because of well-to-do groups entering the business with the aim of earning undue profits. He also blamed the situation on the unregulated business environment. Khatiwada stressed the need to ensure that the movement worked for people suffering from social or geographical exclusion, deprivation and dis-empowerment.

In particular, savings and credit cooperatives have faced problems as they have been offering high interest rates on deposits, providing risky business loans and dealing with non-members. Khatiwada identified lack of a cooperative act, legislation to better govern savings and credit cooperatives, a poor regulatory framework and unclear role of the Ministry of Cooperatives and Poverty Alleviation as the limitations for the development of the sector. “Setting good governance practices could put internal control in place resulting in ethical practices in business.”

According to the Nepal Rastra Bank, 15 percent of Nepali farmers have access to financial services provided by cooperatives compared to just 9 percent with access to banks. “In this context, there is much room for cooperatives to expand their services in agriculture,” said Khatiwada.

According to the 2010 Nepal Living Standards Survey, 25 percent of the people in the country are living under the poverty line. “However, only 17 percent of the households having access to cooperatives are absolutely poor,” he said, highlighting the increasing role of the sector in promoting financial inclusion.

Despite the problems in savings and credit cooperatives, other cooperatives have been playing an effective role in expanding a decentralized system of food security and employment. Of the total number of cooperatives, 33 percent are agriculture-related cooperatives that are engaged in dairy, vegetable, fruit, horticulture and herbal production. “These cooperatives have been facilitating food trade ensuring better food security and also reducing transaction costs at the same time.”

Speaking at the programme, Finance Secretary Shanta Raj Subedi said cooperatives needed to gain greater public trust which could help attract donor agencies. He said that the government had planned to bring cooperatives under the tax net to maintain transparency in their financial transactions.

The government has announced it would waive extra charges for cooperatives paying their taxes by the end of the first half of the current fiscal year.

According to the Finance Ministry, only 1,337 cooperatives have filed their tax returns. “The government is ready to reduce the existing tax rate if they maintain transparency in their business,” said Subedi.

Source: The Kathmandu Post