The report has warned of adverse consequences to the economy if the huge amount of loans dispersed by them is not recovered in time. [break]
An inception report on the financial health of big co-operatives in the Valley prepared by Public Policy Dialogue Center for Department of Co-operatives (DoC) shows that some of the co-operatives are being operated as personal entity or family business without following minimum financial standards.
“Majority of the co-operatives that we studied were lacking adequate credit controlling mechanism as a result of which they might plunge into a big trouble if significant chunk of money invested by co-operatives in unproductive sectors like housing isn´t recovered,” a member of the study team told myrepublica.com on Sunday.
According to rough estimate, deposit mobilized by co-operatives represents around 20 percent of the total deposits of the banking system, which is around Rs 580 billion as per the latest central bank report.
The report has also warned of negative impact to the financial sector as a whole if non-existence of institutional regulation currently being enjoyed by the co-operative sector continues.
- Some co-operatives running as family business
- Inadequate credit security reserve
- Depositing amount in personal account
- Providing remuneration without approval from board
- Discrimination among members
- Insufficient punishment to wrongdoers
- Wrong promotional activities to lure deposits
“Keeping in view the burgeoning deposit in co-operatives, we have suggested the authorities concerned to put them under the purview of Nepal Rastra Bank -- monetary authority of the country -- to closely watch their activities,” the member added.
Stating that the existing Co-operatives Act 1991 has become irrelevant, the report also suggested the timely amendment to the existing act to regulate the ballooning volume of deposit mobilization and loan dispersed by the co-operatives.
Provision of a separate agency to monitor and evaluate the co-operatives through amendment to the existing Cooperative Act, end of existing practice of discriminating the members of co-operatives by categorizing them into various groups, and legal provision to ensure security of deposits are some of the suggestions included in the report.
Similarly, the report has also recommended timely review in existing Act with stringent punishment to wrongdoers and provisions to regulate the investment made in other institutions and companies by co-operatives.
The report has also recommended a separate mechanism with the involvement of different government agencies, including DoC, NRB, Finance Ministry and National Co-operatives Association to monitor the co-operatives.
The report has also urged the government to look into possibility of a separate ministry for development of co-operative sector and strengthening the DoC with arrangement of sufficient manpower.
In the wake of rising trend of luring depositors by offering various schemes by co-operatives, the report has suggested the government to discourage such activities as they are against the spirit of co-operatives.
Also recommended by the study were categorization of co-operatives on the basis of their transactions and effective implementation of monitoring and introducing transparency, introduction of provision to disclose the income of co-operatives like in financial institutions, distribution of dividend after deducting possible loan loss provisions and transparency in distribution of dividend.
The report has also unearthed several wrong practices like registering co-operatives in the name similar to banks or other popular co-operatives already in operation, enjoying perks and benefits by the member of the co-operatives and depositing cooperatives´ resources in the name personal accounts of members.
The report has suggested opening an institutional account in the name of the co-operatives with the provision of operating such account with the signatures of at least two members.
prabhakar@myrepublica.com
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