Nepalese parliament is considering the country’s first new co-operative law in 25 years, with an act tabled by the Ministry of Co-operatives and Poverty Alleviation last month.
When it adopted a new constitution last year, Nepal recognised the role of co-ops in meeting economic objectives and sustainable development. It has more than 32,000 co-ops, 13,000 of which are registered as saving and credit co-operatives.
The sector is governed by the 1991 Co-operative Act but the new law includes harsher penalties against co-ops which misappropriate depositors’ money.
The co-ops ministry, set up in 2012 as a separate entity from the Ministry of Agriculture and Co-operatives, can fine co-ops up to Rs 1,500 for wrong-doing. But Shankar Adhikari, secretary at the ministry, told Kathmandu Post that the current penalty did not deter co-ops from committing financial crimes.
Under the new law, directors of co-ops found to be creating fake loaners can face 10 years’ jail. They will have to pay back the amount embezzled as well as an additional fine. Similar punishments apply to financial institutions through the recently introduced Banking Offence Act.
The Department of Co-operatives, which acts as the registrar, will work with the central bank to supervise and regulate bigger co-ops and develop a special monitoring system.
Consumer co-ops and other co-ops have been banned from granting loans unless they convert to saving and credit co-ops. In addition, co-ops must change their names as per their prime business activity. Multi-purpose and agricultural co-ops with savings and credit as their main business must change their name to Savings and Credit co-operatives.
Other proposals will stops co-ops charging renewal fees and service charges while providing loans to members, set out a fixed 6% interest rate and introduce a mandatory share-to-savings ratio of 1:10.
“Nepal Federation of Savings and Credit Cooperative Unions (NEFSCUN) has been lobbying for a separate act for financial co-operatives since 2009, because the general Co-operative Act cannot monitor financial activities and services,” said Shivajee Sapkota, chief executive of the Nepal Federation of Savings and Credit Co-operatives.
