New co-ops regulations lay out forceful merger provision

Published On: April 23, 2019 08:00 AM NPT By: Sagar Ghimire  | @sagarghi

KATHMANDU, April 23: The government has set standards on registration of new savings and credit cooperatives amid concerns about their growing concentration in urban areas.

According to the new regulation on cooperatives that was recently approved by the cabinet, registration of cooperatives will be based on population of local units. The new regulations, which come in line with the Cooperatives Act 2017, also has a provision that requires existing cooperatives that operate against the standards to go for forceful merger.

As per the new regulation, the government will allow registration of only one cooperative per 5,000 people in a ward of metropolitan and sub-metropolitan cities. Similarly, there will be one cooperative per 2,000 people in municipal area whereas the government will issue license to only one cooperative for every 500 people in rural municipality, according to the new regulations.

The cooperative registrar at the Department of Cooperatives will give priority to the first application if there are multiple applications for registration of savings and credit cooperatives.

Observers say that most of these savings and credit cooperatives have sprouted up in urban areas in recent years. The surge in savings and credit cooperatives have also been attributed to weak corporate governance and internal control in many institutions, landing over 150 such institutions, including Oriental Cooperatives, into troubles. Due to anomalies and lack of corporate governance in those cooperatives, deposits worth over Rs 14 billion of public are at stake.

However, the department has issued a moratorium for licensing of cooperatives in urban areas.
“The regulation to set standards for registration based on population is aimed at preventing risks of high concentration of savings and credit cooperatives in urban areas and encourage the establishment in remote areas where no such institution are preset so far,” Narayan Prasad Aryal, an information officer for the department, told Republica.

As of mid-December 2017, there were a total of 34,512 cooperatives across the country. Among them, the number of savings and credit cooperatives is the highest. According to the data of the Department of Cooperatives, 13,578 savings and credit cooperatives in operation have mobilized a total of Rs 217.49 billion in deposits and extended loans worth Rs 179.88 billion.

The new regulation also lays out provision of merger of such institutions if the number of cooperatives is higher than the limit. The new regulation has set a three-year deadline to reduce the number of cooperatives to ensure implementation of the standards. “If the number of cooperatives is higher than the standards laid out in the regulations, the regulation has made merger between cooperatives within three years a compulsion,” said Aryal. 

Leaders of cooperative sector, however, call for incentives and subsidies to encourage merger of cooperatives. “It would have been easier for implementation of merger if incentives or other facilities were offered to institutions pursuing a marriage like in the banking sector,” DB Basnet, the chairperson of Nepal Federation of Savings and Credit Cooperatives Unions Ltd (NEFSCUN), told Republica.

He is of the view that merger policy could help to strengthen corporate governance and internal control in cooperatives. Based on the standards set in the regulations, he said that the number of cooperatives in reality could go up. “The standards based on the population mean indicate that the number of cooperatives in Kathmandu is high. But, this will pave the way for registration of more cooperatives outside Kathmandu Valley,” he added.

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