New ordinance introduces stricter rules for cooperative governance

KATHMANDU: An ordinance issued by President Ram Chandra Poudel on Sunday introduces several provisions aimed at regulating saving and credit cooperatives.

The ordinance will make amendments to the Cooperative Act and other laws for better regulation of the sector, identified by the state as one of the three pillars of the country’s economy.

Some of the changes that the ordinance will bring include:

Membership: Individuals can no longer be members of multiple cooperatives simultaneously. According to the new provision introduced through the ordinance, those who currently hold multiple memberships must retain only one within a year. Furthermore, individuals will be limited to serving no more than two terms in executive positions at cooperatives.

Deposit Limit: The ordinance has fixed maximum deposit limits for individuals in cooperative institutions. As per the provision introduced through the ordinance, one can deposit a maximum of Rs 1 million in cooperatives holding licenses to operate in local units. Similarly, such limits have been fixed at Rs 2.5 million for province-level cooperatives and Rs 5 million for cooperatives under the jurisdiction of the federal government. Depositors will be given two years to comply with the deposit limits. Individuals must also disclose their source of income for deposits exceeding Rs 1 million.

Credit Information: The scope of the existing Credit Information Bureau will be widened to collect the credit information of borrowers of cooperative institutions as well. Cooperative institutions must provide information on loans of Rs 1 million or more to the bureau.

Insurance of Cooperative Deposits: Saving and credit cooperative organizations must take membership in the Deposit and Credit Guarantee Fund. They must insure deposits as required by law.

National Regulatory Authority: The ordinance has paved the legal way for the creation of the National Cooperative Regulatory Authority to oversee savings and credit cooperatives. The government will appoint an executive chairperson, a cooperative expert, and a chartered accountant to this regulatory body. A director from Nepal Rastra Bank and a joint secretary from the ministry will serve as members of the authority.

Punitive Measures: Cooperatives found violating laws and standards will face fines ranging from Rs 500,000 to Rs 1.5 million. The authority can go to the extent of canceling the registration of cooperatives and may declare cooperative institutions with poor financial health as ‘troubled’ institutions.

Return of Deposits: Regardless of other prevailing laws, deposits up to Rs 500,000 in cooperatives or troubled cooperatives must be given priority for repayment. “Amounts exceeding this will be returned proportionally,” the ordinance adds. The ordinance allows management committees of cooperative institutions to sell assets or loan collateral to repay deposits. It provides provisions for giving borrowers time to repay loans, auctioning collateral if unpaid, collecting rent from mortgaged properties under the lease, and requesting courts or other agencies to release frozen assets for deposit repayment.

Pending or decided cooperative fraud and misappropriation cases in courts can be settled through reconciliation. The statute of limitations for filing cases under the Cooperative Act has been extended from 90 days to one year.