Nepal celebrated the 56th Cooperative Day on Tuesday with big rallies and customary programs across the country. These events have gotten bigger as the influence of cooperatives in national economy increases, with robust growth in deposit mobilization and lending. Even the institutional structure of cooperatives, especially Saving and Credit Cooperatives (SCCs), has been enhanced as their member base and financial capacity have grown steadily over the last five decades. Currently, Nepal’s around 12,000 SCCs have succeeded in mobilizing around Rs 170 billion, which is nearly half the country’s annual national budget.
However, in recent times, questionable modus operandi of SCCs, especially the big fish in the field, have alarmed regulators. Cases of anomalies and acute liquidity crises created by imprudent lending are starting to surface with troubling frequency. The massive deposit collected from general depositors has become increasingly insecure given the anomalies in lending and loan disbursement practiced by SCCs. Liquidity crisis has worsened as SCCs flouts rules in disbursing loans. SCCs cannot mobilize deposits in excess of 10 times the amount of paid-up capital. But mobilization of deposits by some SCCs is alarmingly high compared to their paid-up capital. Another matter of concern for the regulators is that cooperatives have failed to maintain minimum capital requirement for deposit collection.
Joint inspections conducted by the regulators—Nepal Rastra Bank (NRB), the central bank, and the Department of Cooperatives (DoC)—a couple years ago unearthed evidence of overexposure of loan of some cooperatives to real estates, as well as their haphazard lending and weak account-keeping standards, among others. Regulatory capacity of DoC, which regulates SCCs, is extremely weak, given the number of such cooperatives in existence. It is impossible to close eyes to this growing crisis, given that the nominal staffs at SCCs are not even qualified to analyze balance sheets. The NRB, which has highly qualified manpower and huge resources, has not been able to properly regulate around 300 Banks and Financial Institutions (BFIs). So we cannot expect DoC, in its current form, to regulate thousands of SCCs. Perhaps stringent punishment for those flouting existing rules can serve as a deterrent.
Despite these problems, it is also hard to argue the case for controlling the development and expansion of SCCs which are playing a significant role in bringing together scattered savings. So the government needs to strengthen the monitoring capacity of DoC by equipping it with necessary human and financial resources. Though the government has encouraged the SCCs to self-regulate, that has proven insufficient to check frequent cases of irregularities at SCCs, which have greatly eroded public trust. It is high time the government came up with a more stringent Cooperative Act, which gives more teeth to the DoC. Only such a measure will tighten the noose around unscrupulous SCCs and discourage malpractice, and bring back wary customers. The celebration of Cooperative Day will only be meaningful if it is taken as a time to review past mistakes and press ahead with the much-needed reforms to shipshape the sector. Sitting on this growing menace is simply not an option.
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