The bill to amend the Cooperative Act has barred cooperatives from investing in fixed property, private businesses and shares of other companies. However, they can buy government bonds and treasury bills issued by Nepal Rastra Bank (NRB) besides providing loans to their members.

The bill was passed by Parliament two weeks ago, and is in the process of being signed into law by the President. 

The provision preventing cooperatives from investing in private businesses was inserted in the bill in a bid to check the practice of cooperative operators putting money in dubious enterprises which has led to misappropriation of member deposits. 

Similarly, the bill has fixed the working areas for cooperatives. Cooperatives based in metropolitan cities can operate within a single ward. Cooperatives in sub-metropolitan cities can conduct business in a maximum of two wards. Likewise, cooperatives based in municipalities can operate in three wards. Cooperatives based in rural municipalities can operate within the entire jurisdiction of the municipality.

The bill has also barred persons from being a board member in more than one cooperative at the same time. Cooperatives cannot appoint more than one member of a family to an executive position.

Although the existing Cooperative Act 1992 contained this provision, it was widely flouted due to weak monitoring by the government. The government moved to give the Cooperative Act more teeth after a number of cooperatives were found to have embezzled member deposits. 

The bill has included stern provisions based on the recommendations made by a high-level probe commission led by former Special Court justice Gauri Bahadur Karki. The committee had investigated 130 troubled cooperatives.

The bill has allowed cooperatives to engage in financial transactions among themselves. Besides, it has left the way open for organisations to join cooperatives. 

Karki criticised the provision allowing organizations to become a member saying it would make it difficult to stop malpractices going on in the cooperative sector. The Karki-led committee found during its probe that the problems in most cooperatives, including Oriental, were a result of transactions carried out with artificial persons instead of natural persons. 

Moreover, the bill has directed cooperatives to fix the maximum interest spread rate at 6 percent. Cooperatives operating in villages will not be charged tax. Cooperatives based in municipalities will have to pay 5 percent tax. 

The tax rate for those operating in metropolitan and sub-metropolitan areas is 10 percent each.

The bill has allowed NRB to check cooperatives on suspicion of breaching financial regulations.