Government Responsible for Cooperative Mismanagement: Probe Committee Report

A report prepared by the Cooperative Probe Committee highlights severe financial mismanagement in Nepal’s cooperative sector, attributing much of the crisis to government’s negligence. The committee asserts that state’s indifference over time has led to financial distress in several cooperatives, with directors failing to maintain necessary self-discipline.

"The primary issue affecting cooperatives is the lack of self-discipline among operators," the report states, adding that accountability extends beyond the cooperative directors to include the government, regulatory bodies, and members. The report criticizes the government's failure to effectively regulate savings and credit cooperatives, which manage significant financial assets, and points out that key measures, such as audit committees, the credit information center, and the savings guarantee fund outlined in the Cooperative Act, remain unimplemented.

"The regulatory bodies must take responsibility alongside the cooperative directors," the report emphasizes. It also criticizes the weak oversight of cooperatives in rural areas, where audit committees and boards of directors dominate control.

The report raises concerns about the inability of the Department of Cooperatives to manage the sector due to understaffing. While delegating oversight to provincial and local levels provided temporary relief, the overall regulation has weakened.

The committee highlights that, despite cooperatives being regarded as key drivers of economic prosperity, 95 percent of the ministry's efforts are directed elsewhere instead of cooperatives, resulting in inadequate oversight from both the Ministry of Finance and Nepal Rastra Bank (NRB).

The committee stresses the urgent need for regular monitoring, inspection, and supervision of the cooperative sector. It questions the effectiveness of actions taken in response to existing monitoring reports and highlights the importance of enhancing resources and expertise within regulatory bodies. It also advocates for leveraging information technology to improve monitoring efficiency.

Despite the federal Cooperative Act of 2074 and subsequent regulations, the lack of provincial and local laws has hampered the implementation of key provisions. The report calls for the elimination of dual membership and enforcement of regulatory standards, noting that political connections have fostered a culture of impunity, further destabilizing the sector.

The report also criticizes the rampant registration of cooperatives, especially in Bagmati Province, where 315 cooperative organizations were registered without approval from the local level. This unchecked expansion has damaged the credibility and stability of the sector.

While some cooperatives have engaged in welfare activities, many have become profit-driven. The committee notes that frequent transfers of cooperative registrars and officials have hindered regulatory work. It also questions whether cooperatives should take a more active role in bridging gaps between the government and cooperatives, especially in light of the unimplemented Savings and Credit Guarantee Fund and Credit Information Center.

The report identifies unregulated banking activities among cooperatives as a significant problem, with approximately 75 percent of the 31,000 cooperatives involved in savings and credit transactions. It also criticizes the conversion of multipurpose cooperatives into savings and credit entities and highlights illegal investments of cooperative funds into private companies.

The committee concluded that unclear regulatory authority between federal and local governments poses significant challenges, calling for an integrated information system for cooperatives. It also noted that despite numerous commissions and studies over the past seven decades, many reports remain unimplemented. The committee recommended establishing a specialized financial crime investigation bureau to address the rising trend of financial crimes in the cooperative sector.

Additionally, the report advocates for the creation of a nationwide credit information center for cooperatives and calls for a competent cooperative authority. It suggests the state’s first intervention should be to geographically limit the operations of cooperatives to prevent further financial misconduct.