Liquidity crisis in cooperatives: Only 5 percent can be withdrawn at a time

Published On: August 8, 2022 08:30 PM NPT By: Dilip Poudel

KATHMANDU, August 8: Due to the current liquidity crisis in the country’s financial sector, the member-savers of cooperatives will be able to withdraw only 5 percent of their deposits at a time. The umbrella organizations of the cooperatives have made such a call saying that when all the members demand the return of the savings kept in the cooperatives, there will be an imbalance in the payment process.

After the depositors of Gautam Shree Multi-Purpose Cooperative Limited filed a complaint with the department of Cooperatives, demanding the return of deposits, the pressure to return deposits has also increased in other cooperatives. According to the National Cooperative Federation, the depositors began to apply for refunds at a time when there was a lack of liquidity in the market, so as to prevent the creation of more problems, they called for payment by making a schedule. This rule will not apply to cooperatives that do not have a lack of liquidity.

Minraj Kandel, president of National Cooperative Federation, Nepal, said that since the cooperatives cannot afford it when they come to ask for money at once, they have to arrange for the return of only 5 percent of the savings at a time. "We have made such a call after members started queuing up to withdraw their savings in many cooperatives," Kandel said, "This rule should not be applied to organizations that do not have liquidity shortages.”

According to Kandel, there is a saving of about Rs 500 billion in the cooperative sector. "How will the cooperatives cope if the savers come to demand all the money at once?" Kandel said, "We have called for a schedule to arrange the return to avoid further complications."

The number of cooperatives in the country is 29,800. Due to the recession in the financial sector, the federation has requested all the cooperatives because the loans taken by the members have not been returned to the institutions in time, the debt has exceeded the balance and the pressure to return the savings has also increased. When paying optional, ordinary and business savings, the members are appealed to arrange weekly, monthly or mutual agreement to pay a maximum of 5 percent of the savings amount at a time.

Since cooperative organizations maintain a maximum of 20 percent liquidity, it is not possible to return all savings deposits at once, so organizations are advised to remind their members, gain trust, and consult that the common method is to gradually return savings from the recovery of loans invested to members.

The umbrella organizations of cooperatives have also asked to arrange the share capital invested by the members in the form of shares in the cooperative and periodic (term) savings kept as a lump sum payment after a certain period of time, the successive savings amount should not be returned before the end of the period as much as possible.

The lack of liquidity affects not only the cooperatives but also the banking sector. As some cooperatives did not return the money of the depositors, it affected the entire cooperative sector. Due to the negative impact on the industry, business, manufacturing, and tourism sector, cooperative organizations have difficulty in collecting capital and interest. Due to the COVID-19 epidemic, Russia-Ukraine war, trade deficit, inflation, etc, problems have been created in the economy including banking, financial sector, industrial trade, manufacturing sector etc. The co-operative workers claim that it has affected the co-operative sector as well.

Cooperative expert Gyanendra Paudel says that the liquidity problem is a problem in cooperative organizations. He argues that many co-operatives have invested in real estate and now the problem has arisen when the real estate business has stopped. "There has been a slowdown in economic activities including real estate," said Paudel, "And its impact has also been seen in the cooperative sector."

The umbrella organizations of cooperatives have also called for non-purchase of immovable property until the liquidity problem is improved, risk management and good governance without unnecessary expenditure. The cooperatives claim that the limitation imposed on the interest rate in the name of reference interest rate is also the cause of the existing problem. The reference interest rate is said to be subject to periodic revisions or to be left independent or to be automatic from time to time in accordance with the basic principles of an open market economy. It has been requested to immediately implement the provision of Income Tax, Cooperative Credit Information Center, Debt Recovery Tribunal, Cooperative Promotion Fund etc provided for in the Cooperative Act. Cooperatives have insisted on the immediate implementation of the provisions related to debt recovery in the existing Cooperative Act and Rules in order to prevent the increase in debt in cooperative organizations.


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