Kathmandu, January 22. The Ordinance on Cooperative promulgated by the President on the recommedation of the government and the proposed guidelines by the Nepal Rastra Bank titled 'Directives and Standards for Savings and Credit Cooperatives'  have invited scathing remarks from the movement leaders and professionals.

The cooperative movement of the country has lambasted the key provisions of the ordinance and the NRB guidelines and demanded that they be ammened immediately. They have campaigned for the correction of the ordinance through regular parliamentary procedures and the draft of NRB directives afterward.

On the recommendation of the government, President Ram Chandra Paudel had issued the 'Ordinance to Amend Some Nepal Acts Related to Cooperatives, 2081' on December 29 (Sunday), 2024. The Cabinet meeting on December 24 had decided to introduce the ordinance amending ‘some Nepal laws’ including one on cooperatives.

The ordinance comes in response to suggestions from a parliamentary committee investigating cooperatives. The government brought the ordinance as the Parliament was currently not in session to solve the problems seen in the  sector. However, some provisions of the ordinance have been sharply criticised by the cooperators and have asked for the corrections sooner the better.

The ordinance astonishingly, introduces key changes, including savings limits per individual member based on the cooperative’s operational area. As per the new provision cooperatives operating in multiple provinces can accept deposits up to Rs 5 million per individual, cooperatives spanning more than one district can accept deposits up to Rs 2.5 million per individual and cooperatives operating within a single district can accept deposits up to Rs 1 million per individual. Excess savings must be reduced to the prescribed limit within two years.

Likewise, term restriction for cooperative board members has been put by the ordinance. It provisions that individuals will be limited to serving no more than two terms in executive positions at savings and credit cooperatives (Board). Serving on multiple cooperatives with similar operations is also prohibited.

These are the sheer concerns for the cooperartive community. The ordinance aimed at enhancing regulation, accountability, and transparency within the cooperative sector, identified by the state as one of the three pillars of the country’s economy, has reluctantly invited wrath from the operators of the cooperatives.

Chandra Dhakar, the Chairperson at the Nepal Federation of Savings and Credit Cooperative Unions Ltd. (NEFSCUN), the sole principal body of financial cooperatives, told that the savings cap discourages investment in cooperatives. He told that limits should be based on a cooperative’s capital rather than being arbitrarily imposed. Also, the term limit will discourage leadership growth in the cooperatives.

NEFSCUN has also issued a communique stating that the savings cap, board term restrictions as such hinder the swift operation of the financial cooperatives and some other provisions also unmaks the intention of the goverment towards one of the strongholds of the national economy. It says the durable solution of the problem is the enactment of separate financial cooperative act. Likewise, the spokesperson at NEFSCUN, Damodar Adhikari also said that the savings cap, term limitations are are against the universal practice of the cooperartive spirit.

Similar remarks were made by the Chief Executive Officer at NEFSCUN, Dr. Shivajee Sapkota. He told that we are having technical cosultations regarding the provisions and once it is finalized we will submit our chief concerns to the authority. He said, …We strongly believe the issues will be sorted out in the form of amendments.' Similarly, various district unions have also expressed their dissatisfaction over the provisions and released press statements too. Also, the management chiefs of several savings and credit cooperatives have started consultations over the matter and pooled their reservations.

NEFSCUN has stated in the communique that that although some provisions including setting up the National Cooperative Regulatory Authority, acces to the cooperatives to join the existing Credit Information Bureau and mandatory memebrship of Savings and Deposit Fund by the financial cooperatives are a welcome move, other issues go against the globally accepted cooperartive priniciples and even the right guaranteed by the constituion.

Additionally, the ordinance grants Nepal Rastra Bank powers to monitor cooperatives and issue standards. Consequently, the central bank has asked suggestions and feedbacks from all the stakeholders on the draft of the guidelines issued to the savings and credit cooperatives as per the provisions made by the ordinance.

NEFSCUN has strong reservations on this as well. Some of the cooperative experts are suspicious about the possible unwanted interference from the central bank and opine that it risks members' sovernity and deviation from the cooperative principles and values. Meanwhile, the central federation is amassing suggestions from all the members to draw a conclusion to be submitted to the government and the Nepal Rastra Bank. NEFSCUN has hinted that a unanious decision will be made after consultation with members, advisors and stakeholders and hence will be handed over to the concerned authorities for timely correction.

The sector has also criticized the provision allowing individuals to join only one savings and credit cooperative, which could reduce the membership base drastically. According to the new provision introduced through the ordinance, those who currently hold multiple memberships must retain only one within a year

The Minister and the Secretarary at the Ministry of Land Management, Cooperatives and Poverty Alleviation have both told that the provisions could be corrected if need be after discussion and consultation with the movement and the stakeholders.

On the flip side, some provisions made in the ordinance have been unanimoulsy welcomed by the cooperative sector. In fact these were the demands made by the sector since long. One of them is the establishment of a National Cooperative Regulatory Authority to regulate savings and credit-focused cooperatives. The movement has welcomed the move. The authority’s board will consist of five members, including a chairperson with at least 15 years of experience in banking, financial institutions, or cooperatives, or a first-class officer of the Nepal government, a joint secretary from the Ministry overseeing cooperatives, an executive from Nepal Rastra Bank, a chartered accountant and an expert with 10 years of experience in banking or cooperatives,

A recommendation committee, led by the Public Service Commission chairperson, a former governor, and an expert, will appoint the authority’s chairperson and expert members.

The ordinance amends the Nepal Rastra Bank Act to include cooperatives in the Credit Information Center. This allows cooperatives to share and access credit-related information. Also, the ordinance mandates cooperatives to join the Deposit and Credit Protection Fund to safeguard deposits and loans.

The ordinance allows reconciliation in cooperative fraud cases. However, reconciliation is not allowed in cases involving organised crime, money laundering, or other criminal offenses. The court can enforce reconciliation by lifting any freeze on movable or immovable assets of the defendant. These are welcomed by the cooperators as well.

Under the revised act, cooperative registration rights are now exclusively assigned to local governments. The authority will develop and implement standards for cooperative registration, regulation, supervision, monitoring, and reporting. Previously, cooperatives could also be registered at the provincial and federal levels.

Depositors in cooperatives must disclose the source of funds for savings exceeding Rs 1 million. Undisclosed funds will not be accepted. It has also provisioned divident payout limit capped at 15 % of share capital, curtailed from the previous 18 %.

As per the new provisions, to declare a cooperative as problematic, at least 25% of its shareholders must file a complaint. Previously, a minimum of 25 individual members could file complaints for investigations.

A management committee can form a special task force to handle problematic cooperatives. This team will have specific duties and rights assigned during its formation. Deposits up to Rs 500,000 will be prioritised for repayment in such cases.The ordinance allows the committee to petition the court for the release of frozen assets and mandates that all expenses related to managing problematic cooperatives be borne by their assets.

The government officials claim that the ordinance was primarily aimed at demonstrating Nepal's commitment to international standards for preventing money laundering. The Financial Action Task Force (FATF), an international body that sets and monitors anti-money laundering standards, is scheduled to hold its next plenary session in France on February 17, 2025. Officials indicated that the ordinance seeks to address loopholes in the cooperative sector, deemed risky for money laundering, to avoid Nepal being placed on the FATF’s grey list.

The Asia Pacific Group (APG), a regional organization under FATF, had highlighted deficiencies in Nepal's cooperative sector during its mutual assessment last year. The report pointed out ineffective regulation, weak governance, and high money laundering risks in cooperatives. Ahead of the FATF plenary held in June 2024, the government had amended the Cooperatives Act 2017 and the Nepal Rastra Bank Act 2002 to signal stricter regulation of cooperatives. However, key provisions, such as empowering Nepal Rastra Bank to monitor large cooperatives and impose savings limits, were not passed by Parliament. Under pressure to show progress before the February plenary, the government amended both Acts via the ordinance.

The ordinance has classified cooperatives into national, provincial, and district categories, introducing deposit limits based on their level of operation. Despite these reforms, there are challenges as well. Nepal has approximately 14,000 registered savings and credit cooperatives, with many others operating under different names. The newly established Cooperative Regulatory Authority faces significant hurdles, including a lack of operational resources and potential government interference.