KATHMANDU: President Ram Chandra Poudel certified the ‘Ordinance to Amend Certain Nepal Acts Relating to Cooperatives’ on Sunday.
The ordinance, which was recommended by the Council of Ministers during a meeting last Tuesday, came into effect the same day after President Poudel’s certification.
The government stated that the ordinance was introduced to address the issue of savings misappropriation in more than a hundred cooperatives operating in urban areas of Nepal.
According to the government, the existing ‘Cooperative Act, 2074 BS’ has failed to resolve the ongoing problems in the cooperative sector.
With the enactment of this ordinance, the National Cooperative Development Board has been abolished.
Key provisions in the new ordinance
The Cooperative Act, 2074 BS, did not include a provision for a dedicated cooperative authority.
The new ordinance introduces the ‘National Cooperative Regulatory Authority’ by adding clause (e 1) to Section 2 of the Cooperative Act, 2074 BS.
The ordinance also establishes a classification system for cooperatives engaged in credit and savings transactions at three levels: federal, provincial, and local.
The question arises whether the authority created by the ordinance can effectively address the problems faced by the government in the cooperative sector. There are doubts about its effectiveness.
Additionally, the ordinance mandates the registration of cooperatives engaged in savings and loans, as determined by the new authority after the ordinance takes effect.
One significant change is that the ordinance prohibits a person from being a member of more than one cooperative of the same type.
The previous law allowed membership in multiple cooperatives within the same local level.
Now, the ordinance stipulates that a person cannot be a member of more than one cooperative of the same nature either inter-municipally or nationwide. The ordinance specifically states:
‘(1) Notwithstanding anything contained elsewhere in this Act, a person cannot be a member of more than one cooperative of the same nature.’
The ordinance also places limits on how long a person can hold a position as a director in a cooperative organization engaged in savings and loans.
It now prohibits anyone from being elected to this position for more than two terms.
The earlier law had a provision limiting family members from both being candidates and serving as directors or on the accounts committee at the same time.
Savings and Loan Limits Set
Previously, cooperatives set their own savings limits in their bylaws, but the ordinance now establishes federal-level savings and loan limits.
According to the new rules, cooperatives dealing in savings and loans across multiple provinces can save up to 5 million rupees, those operating across multiple districts can save up to 2.5 million rupees, and cooperatives with operations within a single district can save up to 1 million rupees.
The ordinance specifies that these savings limits must be set within two years of its enactment.
Moreover, a new provision requires cooperatives to disclose the source of any savings exceeding 1 million rupees.
Additionally, the ordinance limits the annual dividend distribution by cooperatives to no more than 15 percent, reducing the previous limit of 18 percent.
Mandatory affiliation with the credit information center
The Cooperative Act, 2074 did not require cooperatives engaged in savings and loan transactions to affiliate with the Credit Information Center.
However, the ordinance amends Section 81 of the Act, making it mandatory for such cooperatives to exchange information on savings and loan transactions by obtaining membership with the Credit Information Center, which is governed by prevailing law.
Moreover, the ordinance requires cooperatives to submit information on loan transactions exceeding one million rupees, as well as the names of borrowers who fail to repay their loans on time, to the Credit Information Center every three months.
Provisions of the Authority
The Ordinance establishes a provision for the creation of an authority to regulate cooperatives engaged in savings and credit transactions at the federal, provincial, and local levels.
The ordinance introduces a new Chapter (17A) and specifies that a ‘National Cooperative Regulatory Authority’ has been established to oversee these cooperatives within the jurisdiction of all three levels of government.
The ordinance also stipulates that the central office of the Authority will be located in the capital, Kathmandu, and that it will coordinate with the government through the relevant ministry.
According to the ordinance, the government will appoint the members of the Authority.
The Authority will include the Executive Director of Nepal Rastra Bank, the Joint Secretary of the Ministry of Land Management and Poverty Alleviation (who is in charge of cooperatives), an expert, and a chartered accountant.
The Ordinance grants the Authority the responsibility to formulate and implement national standards regarding various aspects, including the registration, regulation, supervision, monitoring, and reporting of cooperatives engaged in savings and credit transactions.
The Authority will also have the power to inspect cooperatives, receive complaints, conduct investigations, and issue directives.
In cases of embezzlement of savings, the ordinance allows the Authority to take statements, collect evidence, request documents, impose fines, and even recommend the dissolution of a cooperative organization, similar to the powers of a district court, as per prevailing law.
Provisions Regarding the Return of Savings: Priority to Amounts Under 500,000 Rupees
The ordinance introduces special provisions for the return of savings, adding section (a) to Section 108 of the Cooperative Act, 2074.
It states that in the event a cooperative is declared troubled, the return of savings will be prioritized for amounts up to 500,000 rupees.
The ordinance further specifies that standards should be established if it is not possible to return savings exceeding 500,000 rupees at once.
The ordinance also includes provisions for debtors, specifying that they must be given time before the collateral security they have provided is sold.
If the loan is not repaid during this period, the collateral may be sold through an auction.
The ordinance also makes provisions for settlement in cases where savings have been returned according to the prevailing law.
In the past, the government had also attempted to address the problems within cooperatives by declaring them problematic after the National Cooperative Development Board failed to resolve these issues.
Furthermore, the ordinance amends the Nepal Rastra Bank Act, 2058 BS, and the Deposit and Credit Protection Act, 2073 BS, to include cooperatives in the Credit Information Center. It also repeals the Cooperative Development Board Act, 2049 BS.
Can a weak authority solve the government’s problems?
The question arises whether the authority created by the ordinance can effectively address the problems faced by the government in the cooperative sector. There are doubts about its effectiveness.
In recent years, there has been a tendency in Nepali politics to believe that the creation of an authority will solve all problems.
For instance, after the 2072 BS earthquake, the concept of forming an authority with full powers to coordinate inter-ministerially was implemented.
The Reconstruction Authority formed as a result did accomplish significant work.
Similarly, it was argued that a Disaster Management Authority should be established to improve disaster management under the Ministry of Home Affairs.
However, despite its establishment, the Disaster Management Authority has remained a largely inactive office under the Ministry, with its role limited to issuing weather-related statements.
During the floods and landslides of the rainy season, it became evident that the Authority played little role in rehabilitating disaster-affected areas.
We have also seen the workings of the Civil Aviation Authority and the Nepal Electricity Authority, both of which have long been in place.
However, government intervention in these institutions has at times weakened their effectiveness, as seen with the Energy Ministry’s office being moved to Ratna Park.
Following this trend, the formation of the Cooperative Authority seems based on the assumption that simply creating such an authority will resolve all the issues within the cooperative sector.
However, its structure resembles that of the ‘Cooperative Board,’ which operates under the Ministry of Cooperatives, rather than an autonomous body with inter-ministerial coordination.
This narrow framework limits the potential effectiveness of the authority itself.
The appointment process for the Cooperative Authority is not significantly different from that of the Cooperative Board.
The chairperson and two expert members are appointed by the Government of Nepal, while the Executive Director of Nepal Rastra Bank and the Joint Secretary from the Ministry of Cooperatives serve as members.
Although a recommendation committee is involved in the appointment process, the government retains the power to remove members at any time.
There have been calls for the government to take responsibility and directly return the savings of small depositors. However, the government has not fulfilled this demand from victims of cooperative mismanagement.
There is no mandatory requirement for a lawyer or experts in finance and chartered accounting to be included as members of the Authority.
In the past, the government had also attempted to address the problems within cooperatives by declaring them problematic after the National Cooperative Development Board failed to resolve these issues.
However, this initiative did not solve the underlying problems either. This raises the question of whether the new authority, with its limited powers and scope, will be able to achieve meaningful change.
The parliamentary inquiry committee had also recommended that the government establish a regulatory authority.
However, questions remain about how this will address the problems facing cooperatives.
The government’s decision to hastily introduce an ordinance and establish another mechanism (authority) in the same manner as previous ones, without adequate discussion in parliament, raises doubts.
The provision in the ordinance regarding the “return of savings of less than 5 lakhs” is particularly noteworthy.
It does not mean that the government will directly return the money of savers with amounts less than 5 lakhs.
Instead, it states that savings will be prioritized for repayment from the concerned cooperative.
This approach mirrors attempts made by troubled cooperatives in the past.
There have been calls for the government to take responsibility and directly return the savings of small depositors. However, the government has not fulfilled this demand from victims of cooperative mismanagement.
Whether this ordinance will effectively solve the problems facing cooperatives remains a subject of debate.
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