Central Bank Takes Action Against Financial Irregularities
Nepal Rastra Bank (NRB) has decided to prohibit savings and credit cooperative unions from collecting savings after discovering financial malpractices. The central bank found that the Central Union of Savings and Credit Cooperatives (NEFSCUN) manipulated financial statements to show fake profits and engaged in irregularities, including improper software purchases. This decision aims to regulate the sector and protect investors.
Proposed Guidelines for Cooperative Institutions
NRB recently released draft guidelines titled “Directives and Standards for Savings and Credit Cooperative Institutions” for public feedback. The draft proposes banning national, provincial, and district cooperative unions from collecting savings. Additionally, the guidelines require cooperative institutions to maintain liquid assets equivalent to at least 15% of their total savings liabilities. Liquid assets include cash reserves, government bonds, deposits in licensed banks, and other approved financial instruments.
Legal Framework and Cooperative Act
The Cooperative Act of 2017 does not authorize cooperative unions at any level (national, provincial, or district) to collect savings. These unions are instead mandated to focus on business development, promotion, and market expansion. However, many unions, including NEFSCUN, provincial unions, and district unions, have been collecting savings illegally. NRB Executive Director Guru Prasad Poudel clarified that only institutions licensed under the NRB Act are permitted to collect savings.
Challenges and Risks in the Sector
For years, cooperative unions have collected billions in savings from primary cooperatives, creating significant risks. Some primary cooperatives are now facing liquidity crises due to unions’ inability to return collected savings. For instance, NEFSCUN has been accused of showing fake profits by not providing bad loans, which could lead to severe financial instability.
Call for Accountability and Reform
NRB has urged the Ministry of Cooperatives and the recently formed Cooperative Authority to address these issues. Executive Director Poudel emphasized that cooperative unions should not compete with primary cooperatives or cooperative banks. Instead, their role should be limited to advocacy and promotion, as outlined in the Cooperative Act.
Stakeholders’ Perspectives
Om Devi Mall, President of the National Cooperative Federation, supports NRB’s decision, stating that cooperative unions should not engage in savings collection. She highlighted that no other country, except Sri Lanka to some extent, allows such practices. Mall stressed the need for clear roles and responsibilities to avoid conflicts of interest.
NEFSCUN’s Defense
NEFSCUN Chairman Chandra Prasad Dhakal defended the union’s actions, claiming that they operate under the regulations approved by the Cooperative Department. He argued that NEFSCUN’s primary role is to manage savings and credit for primary cooperatives and that their practices have been consistent for 37 years. However, NRB maintains that such activities are illegal under current laws.
Future Implications
The proposed guidelines aim to bring transparency and stability to the cooperative sector. If implemented, only licensed institutions will be allowed to collect savings, reducing risks for primary cooperatives and their members. The Cooperative Authority is expected to play a crucial role in enforcing these regulations and ensuring compliance.
Source: Draft Guidelines by Nepal Rastra Bank and Stakeholder Statements