Govt firm on its plan to implement interest-rate ceiling on cooperatives

Published On: November 16, 2019 12:36 PM NPT By: Republica  | @RepublicaNepal

KATHMANDU, Nov 16: The Ministry of Land Management, Cooperatives and Poverty Alleviation on Friday said that the government was firm to implement the reference interest rate of 16 percent on lending by cooperative organizations.

Nepal's cooperative sector -- the savings and credit cooperatives in particular -- has been largely criticized for exorbitant rates of interest both on deposit and lending. Lack of effective measures has led to financial irregularities in the cooperatives, while the excessive rates of interest on loan have left borrowers undergo financial crisis.

Targeting to check such malpractices, the government has capped the lending rate for cooperatives at 16% since last August. Similarly, the government has maintained the spread rate at the maximum of 6%.

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

With the provision at place, cooperative organizations cannot provide interest of more than 10 percent on the deposits. However, taking undue advantage of the government's weak monitoring, many cooperatives have not been following the rule.

Surya Prasad Gautam, secretary at the ministry, said the ministry was planning to carry out inspections of cooperative organizations, in coordination with the local governments, to implement the rule.

“We are delegating full authority to the Department of Cooperatives to coordinate with mayors and ward chairmen of the local government and the provincial administrative chiefs to instantly take action against the cooperatives involved in misconducts,” said Gautam, speaking at an event organized by the Cooperative Journalists Society Nepal.

As of now, the government has declared 12 savings and credit cooperatives, including the controversial Oriental Cooperative as 'troubled.' Many of them fell into crisis, as a result of offering exorbitant interest rates on deposit to attract large amount of funds as well as due to poor organizational governance.

Gautam said most of the cooperatives have been carrying out their businesses to secure hefty profit rather than consider their members' welfare. “Cooperatives cannot act as the institutional money lenders to trap their members in the financial problems,” he said.

Since the government has capped the interest ceiling, many cooperatives as well as the concerned associations have been protesting against the law marking the government move an 'arbitrary' decision.

Gautam said the 11-member committee formed under the ministry consisting of six members from the cooperative sector has fixed the reference rate by assessing the interest rates of commercial banks, cost of operation, and interest rates charged by the Cooperative Bank.

“The cooperatives will not get any excuse to cheat their members.”

DB Basnet, chairperson of Nepal Federation of Savings and Credit Cooperative Unions, said the federation has enforced the interest rate ceiling in all its 600 member cooperatives. According to him, they have also been tracking the service charge being levied by the cooperatives. The government law has prohibits cooperative organizations to charge service fee rampantly.

Basnet said there was need for revising the reference rate because the banks too have started increasing their interest rates on loan.

Gautam, however, hinted that the ministry will not increase the interest rate ceiling even if the banks raised their interest rates. “The government will think about revising the rate only after enforcing the interest rate ceiling on all cooperative organizations effectively,” he said.

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