Ceiling for interest rate of credits of cooperatives fixed at 16%

Published On: August 3, 2019 07:44 AM NPT By: Sagar Ghimire  | @sagarghi

Cooperatives found charging higher than cap to face action

KATHMANDU, Aug 3: The government has capped the lending rate for cooperatives at 16%.

With the enforcement of the new rule introduced by the Department of Cooperatives (DoC), cooperatives will not be allowed to charge more than 16% interest rates on loans that they float to their members. The new rule on the interest rates of the cooperatives will come into effect from August 4 (Sunday). 

Following the decision of the Reference Interest Rate Determination and Recommendation Committee, the Department of Cooperatives (DoC) has set the upper limit of lending rates for the cooperatives across the country.

Similarly, the department has also fixed the maximum interest rates spread of a cooperative to 6%. This means that the difference between the deposit and loan rates of a cooperative should be below 6%.

This new rule will ensure at least 10% interest on deposits for those who put their savings in cooperatives that charge the maximum 16% interest rates on their loans.

The department has set the reference rates for cooperatives in line with the provision in the ‘Cooperatives Regulation, 2019’ and the ‘Cooperatives Act 2017’.

The act entrusts the authority to the registrar of the department to fix the reference interest rates for cooperatives upon the recommendation of a nine-member committee. Such committee headed by the registrar includes a representative from the Ministry of Finance, Nepal Rastra Bank, National Cooperative Development Board, National Cooperative Federation of Nepal, and National Cooperative Bank Ltd, among others. 

There are 13,578 saving and credit cooperatives across the country, according to the data of the department as of Fiscal Year 2016/17. 

Tok Raj Pandey, the registrar of department, told Republica that the committee fixed the reference interest rates for the cooperatives by taking into considerations the basis and principles laid out by the cooperatives regulation. 

According to the regulation, the committee has to factor in the average interest rates of saving and credit cooperatives affiliated with the federation, average interest rates of cooperative banks, average interest rates of commercial banks, reports of the studies commissioned by the government, suggestions of cooperatives federation and other associations as well as other basis that the committee deems appropriate. 

Similarly, the regulations state that the reference committee should take into consideration principles such as: the deposit rates should be higher than the weighted average saving rates and lending rates lower than the weighted average lending rates. According to the regulation, the spread between the deposit and lending should not be lower than 6%. 

Experts say that the cap on the lending rates will curb anomalies in many cooperatives charging exorbitant interest rates to borrowers who are mostly from low-income families in rural areas. But, they also raise concerns over the effective implementation of the new rule. Some cooperatives were found to be charging up to 25% interest rates on loans to their members. 

However, Pandey said that the department which is the regulator of cooperatives will take action against those who flout the new rule. 

“We will be monitoring cooperatives. Those cooperatives who charge higher than the maximum interest rates on credits will face action,” added Pandey.

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