The government of Nepal has taken a significant step towards enhancing the oversight and regulation of financial cooperatives by drafting the Financial Cooperative (Regulation and Supervision) Act, 2024. This act proposes the establishment of an authority responsible for licensing, regulating, and supervising financial cooperatives that collect deposits from the public and provide credit services. The move comes in response to concerns about the misuse of people’s deposits by cooperative promoters due to the lack of regulatory oversight.
The proposed authority, as outlined in the draft law, will have the power to set minimum capital requirements for financial cooperatives, issue licenses, classify cooperatives based on various criteria, and conduct monitoring and supervision activities. This regulatory body will play a crucial role in ensuring the stability and integrity of the financial cooperative sector in Nepal.
According to the draft law, financial cooperatives with transactions exceeding Rs 50 million, capital exceeding Rs 15 million, and individual savings above Rs 1 million will be required to obtain a license from the authority. Existing cooperatives will also need to comply with this licensing requirement once the authority becomes operational. This move aims to bring transparency and accountability to the operations of financial cooperatives and protect the interests of depositors.
The draft law also proposes the classification of financial cooperatives into three categories based on factors such as share capital, transaction volume, and operational area. This classification will help the authority tailor its regulatory approach to the specific needs and risks associated with different types of cooperatives. By setting minimum capital requirements and other standards, the authority can promote sound financial practices and mitigate potential risks in the sector.
The decision to create a separate regulatory body for financial cooperatives reflects the government’s commitment to strengthening the oversight of these institutions. In the past, regulatory gaps and weak governance have led to the failure and closure of several cooperatives, causing financial losses and social unrest. The International Monetary Fund (IMF) has also raised concerns about the lack of effective regulation and supervision in the cooperative sector, emphasizing the need for proper licensing processes and regulatory mechanisms.
The formation of an autonomous regulatory authority for financial cooperatives will mark a significant milestone in Nepal’s efforts to promote financial stability and protect the interests of depositors. By establishing clear rules and standards for cooperative operations, the government aims to enhance the credibility and resilience of the financial cooperative sector. This regulatory framework will help prevent misuse of deposits, improve risk management practices, and ensure the long-term sustainability of financial cooperatives in Nepal.