Govt refuses hiking reference interest rate on loan issued by cooperatives

Published On: January 9, 2022 06:30 AM NPT By: Republica  | @RepublicaNepal

KATHMANDU, Jan 9: The government has ruled out raising the reference interest rate for cooperatives at a time when the cooperatives operators have been lobbying the government bodies to hike the interest rate.

Speaking at a program on Friday, Minister for Land Management, Cooperatives and Poverty Alleviation Shashi Shrestha said there is no room for cooperatives to raise the interest rate as the organizations already have higher interest rates. “As the cooperatives should aim for giving respite to people at the grass root level, they should rather consider reducing the interest rate,” said Shrestha at the 11th annual general meeting of the Cooperative Journalists Society Nepal.

In September 2020, the Department of Cooperatives (DoC) fixed a ceiling of 14.75 percent of interest rate for the saving and credit cooperatives on their loans. Citing liquidity crunch in Nepal’s banking system and increased interest rates by the banks, the cooperatives operators have recently been pushing the sector’s regulator to make it at least 16.75 percent.

Gyan Bahadur Tamang, director of National Cooperative Bank Limited, said cooperatives are finding it hard to manage their financial transactions within the given reference rate due to ongoing liquidity shortage that has also grappled the cooperative businesses. “At present, the banks’ lending rate has already crossed 12 percent and the cost of funds for cooperatives has also surged accordingly,” Tamang said.

Although the cooperatives cannot take an interest rate of more than 14.75 percent at present, they have been accused of taking heavy fees from their borrowers in the name of service charge. Recently, the DoC has formed a panel to study on revising the reference rate on lending by cooperatives. “However, the regulator has just been dilly dallying to call a meeting of the stakeholders,” said Tamang.

Meanwhile, Minister Shrestha also expressed her concern on the rampant service charge being taken by a number of cooperatives from their members. She stressed on the need for the cooperatives to abide with the existing laws to improve their depleting images caused due to embezzlement of depositors’ money by a few saving and credit cooperatives.   

“It has also come to our notice that local governments are issuing new licenses to cooperatives when there are already an overwhelming number of the cooperatives operating in the country. The ministry will soon endorse a vision paper as the roadmaps for framing the country’s cooperative businesses,” she added.   


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