Efforts to bring Nepal’s cooperatives under the existing credit reporting and deposit protection frameworks have stalled, despite legal amendments intended to integrate them with the country's financial oversight mechanisms.
The government revised the Cooperative Act to allow savings and credit cooperatives access to the systems currently used by banks and financial institutions—specifically, the Credit Information Bureau (CIB) and the Deposit and Credit Guarantee Fund (DCGF).
However, both institutions have expressed reluctance to assume this responsibility until effective regulatory oversight of cooperatives is ensured.
The CIB, which is backed by Nepal Rastra Bank (NRB) and commercial banks, facilitates credit information sharing and blacklists defaulters. Meanwhile, the DCGF, with 90 percent government and 10 percent NRB ownership, provides deposit protection of up to Rs 500,000 for individual bank accounts and guarantees credit in priority and disadvantaged sectors. Though these services are currently limited to licensed banks and financial institutions, recent amendments aim to extend their coverage to cooperatives.
Ramesh Ghimire, CEO of the DCGF, said they cannot provide the same services until the cooperatives have improved regulatory mechanisms. “The first pre-condition we have set is effective regulation of cooperatives,” he stated, adding that relevant authorities have been informed about this.
The government has established the National Cooperative Regulatory Authority (NCRA), specifically tasked with supervising cooperatives that primarily engage in savings and lending. Although the authority was legally activated in January, it is yet to become fully operational due to delays in appointing its chairperson and expert members.
Kedar Nath Sharma, Secretary at the Ministry of Land Management, Cooperatives, and Poverty Alleviation, said that the appointment process is underway and that once the authority is fully functional, it will pave the way for extending deposit guarantee and credit information services to the cooperative sector.
The original 2017 Cooperative Act had mandated the creation of a specialized credit bureau and deposit insurance fund exclusively for cooperatives. However, the model was deemed ineffective, prompting the government to amend the law and fold cooperatives into the existing national financial oversight mechanism.
Currently, the CIB has been providing credit information services to banks and financial institutions. However, defaulters blacklisted by one cooperative are still able to obtain loans from others, especially in urban areas where such institutions are more concentrated.
In response to mounting pressure from stakeholders, the government last week approved the formation of a dedicated Loan Recovery Tribunal for cooperatives. The tribunal, long envisioned in the Cooperative Act and its regulations, is expected to address rising non-performing loans in the sector.
