Government bolsters efforts to establish second-tier institution for cooperative regulation

KATHMANDU: Amidst mounting concerns over a plethora of irregularities within the cooperative sector, the government has intensified its endeavors to institute a Second-Tier Institution (STI) as a robust regulatory body to oversee the domain.

In recent years, the government has identified approximately two dozen cooperatives as problematic, with numerous complaints lodged against several others for alleged misappropriation of depositors’ funds. Despite discussions dating back two decades regarding the establishment of a dedicated STI, concrete action had not materialized until now.

Presently, the Department of Cooperatives (DoC) functions as the primary regulatory authority, yet has faced criticism for its perceived ineffectiveness in monitoring the operations of over 32,000 cooperatives nationwide.

Although the constitution advocates for empowering local governments to regulate cooperatives within their jurisdictions, progress has been sluggish due to legal constraints and human resource shortages. Nepal Rastra Bank (NRB), apart from overseeing a few major cooperatives, has declined to regulate the thousands of others.

Balaram Adhikari, Minister for Land Management, Cooperatives, and Poverty Alleviation, affirmed the government’s commitment to establish a potent STI during a recent event, emphasizing the need for stringent measures to ensure compliance with laws within cooperative entities.

Former DoC registrar Sudarshan Dhakal highlighted discussions spanning sixteen years regarding the formation of an STI to supervise savings and credit cooperatives, yet progress remains elusive.

Minister Adhikari revealed that a draft proposal for the STI’s formation has been submitted to the Ministries of Finance and Law, Justice, and Parliamentary Affairs for initial endorsement, with subsequent legislative actions anticipated upon their approval.

The International Monetary Fund (IMF) has echoed calls for a dedicated STI, citing the escalating risks posed by inadequately regulated cooperatives and advocating for regulatory frameworks to align with the government’s financial inclusion objectives.

Former NRB executive director Nara Bahadur Thapa underscored the necessity of an STI to alleviate the central bank’s burden in overseeing numerous financial intermediaries.

Ramesh Chaulagain, NRB’s deputy director, suggested categorizing cooperatives and facilitating mergers as an alternative approach to streamline supervision, underscoring the complexity of overseeing thousands of cooperatives under a single STI.

As discussions continue and proposals progress, stakeholders are hopeful that the establishment of a robust STI will fortify regulatory oversight and promote transparency within Nepal’s cooperative sector.