Savings and credit cooperatives that have made massive investments in stocks are at risk of facing a financial crisis following a plunge in share prices, experts said. 

Expressing concern that many cooperatives had failed to implement good governance practices and corporate culture in management, stakeholders said that there were chances that depositors may lose their savings if the government did not take stern measures in time. 

According to them, a number of savings and credit cooperatives are still investing large amounts in the realty business, stock market and personal loans. 

The newly enacted Cooperative Act has barred cooperatives from investing in stocks, fixed assets of other companies, construction of infrastructure and loans to non-members. Likewise, new members must have held membership for at least three months to be eligible to receive loans. 

Surendra Bhandari, board member of the National Cooperative Federation, an umbrella organisation of financial cooperatives, said many savings and credit cooperatives had been investing large sums in the secondary market and housing business and issuing loans to non-members. “These primary cooperatives could face a financial crisis following a sharp fall in share prices. Similarly, the loans they have issued to non-members are not being repaid,” said Bhandari, speaking at a session organised at the second Cooperative Congress that concluded on Thursday. 

Earlier, similar malpractices appeared mainly due to weak regulation, absence of related laws and ineffective monitoring by authorities. As a result, more than 150 financial cooperatives were declared problematic and their managers charged with misappropriating funds running into billions of rupees.

According to Bhandari, hardly 5 percent of the savings and credit cooperatives have been following government norms. He urged the government to implement strict guidelines and monitoring mechanism to protect the people’s deposits. 

The government has enforced the Cooperative Act but not formulated the related regulations. In addition, it has failed to clearly designate an authority to monitor cooperatives operating at the local level. 

Sudarshan Dhakal, former registrar at the Department of Cooperatives, said most of the operators of financial cooperatives lacked sufficient knowledge about finance and accounting systems. “In addition, these cooperatives do not maintain sufficient records of their financial transactions and reporting system.” 

Excessive political influence and lack of participation by members in major decision making has hit the self-regulating sector. Tej Bahadur Thapa, chairman of the District Cooperative Association, Surkhet, said the government needed to create a list of indicators related to good governance. “The government should categorise cooperatives and develop separate monitoring mechanisms according to how well they fulfill the indicators,” Thapa said. 

The participants also pointed to the need to set up a savings guarantee fund, insure deposits and establish a stabilisation fund to ensure smooth functioning of the cooperative sector.