On Sunday, President Ram Chandra Paudel promulgated an ordinance amending the Cooperative Act. The ordinance introduces key changes, including the establishment of a National Cooperative Regulatory Authority to regulate savings and credit-focused cooperatives.
National cooperative regulatory authority to oversee cooperatives
The ordinance amends the Cooperative Act to form the National Cooperative Regulatory Authority, which will regulate cooperatives primarily involved in savings and credit activities.
The authority’s board will consist of five members, including:
- A chairperson with at least 15 years of experience in banking, financial institutions, or cooperatives, or a first-class officer of the Nepal government.
- A joint secretary from the Ministry overseeing cooperatives.
- An executive from Nepal Rastra Bank.
- A chartered accountant and an expert with 10 years of experience in banking or cooperatives.
A recommendation committee, led by the Public Service Commission chairperson, a former governor, and an expert, will appoint the authority’s chairperson and expert members.
Cooperative registration limited to local levels
Under the revised act, cooperative registration rights are now exclusively assigned to local governments. The authority will develop and implement standards for cooperative registration, regulation, supervision, monitoring, and reporting. Previously, cooperatives could also be registered at the provincial and federal levels.
Savings limits based on scope of operations
The ordinance introduces savings limits per individual based on the cooperative’s operational area:
- Cooperatives operating in multiple provinces can accept deposits up to Rs 5 million per individual.
- Cooperatives spanning more than one district can accept deposits up to Rs 2.5 million per individual.
- Cooperatives operating within a single district can accept deposits up to Rs 1 million per individual.
Excess savings must be reduced to the prescribed limit within two years.
Source disclosure for savings above Rs 1 million
Depositors in cooperatives must disclose the source of funds for savings exceeding Rs 1 million. Undisclosed funds will not be accepted.
Dividend limit capped at 15%
The ordinance limits cooperative dividend payouts to a maximum of 15% of share capital, down from the previous 18%.
Two-term limit for board members
Individuals can serve as board members of savings and credit cooperatives for a maximum of two terms. Serving on multiple cooperatives with similar operations is also prohibited.
Credit information center for cooperatives
The ordinance amends the Nepal Rastra Bank Act to include cooperatives in the Credit Information Center. This allows cooperatives to share and access credit-related information.
Mandatory membership in deposit and credit protection fund
The ordinance mandates cooperatives to join the Deposit and Credit Protection Fund to safeguard deposits and loans.
25% member complaint required for declaring problematic cooperatives
To declare a cooperative as problematic, at least 25% of its shareholders must file a complaint. Previously, a minimum of 25 individual members could file complaints for investigations.
Special task force for problematic cooperatives
A management committee can form a special task force to handle problematic cooperatives. This team will have specific duties and rights assigned during its formation. Deposits up to Rs 500,000 will be prioritised for repayment in such cases.
The ordinance allows the committee to petition the court for the release of frozen assets and mandates that all expenses related to managing problematic cooperatives be borne by their assets.
Provision for reconciliation in fraud cases
The ordinance allows reconciliation in cooperative fraud cases. If a defendant in a court case under Section 130 regarding deposit misappropriation or cooperative fraud returns the misused or withheld deposit amount, they can request reconciliation.
However, reconciliation is not allowed in cases involving organised crime, money laundering, or other criminal offenses. The court can enforce reconciliation by lifting any freeze on movable or immovable assets of the defendant.
These provisions aim to enhance regulation, accountability, and transparency within the cooperative sector.
