Credit information centre of cooperatives is in the pipelineThere are over 13,500 savings and credit cooperatives with 3.45 million members across the country.
The government has formed a task force under the National Cooperative Federation of Nepal to set up a separate body to maintain the credit information of debtors, a move aimed at identifying defaulters.
Lack of effective regulation of the sector has seen many savings and credit cooperatives face a financial crisis for over a decade, posing a risk to people’s deposit. In many cases, cooperatives run into financial problems due to poor management and its inability to recover loans from debtors.
For instance, Societal Saving and Credit Cooperative in New Baneshwor, which the Ministry of Land Management, Cooperatives and Poverty Alleviation had declared problematic in last April, also fell into financial problems after failing to recover loans from its members. The list of defaulters includes high-ranking government officials and individuals with strong political backing.
Although the government has a mechanism to penalise such cooperatives, those who default on loans issued by cooperatives face no government action. On the other hand, those who default on bank loans are blacklisted and are barred from taking loans from other banks.
Chitra Kumari Thamsuhang Subba, general manager of the federation, who heads the task force, said the proposed credit information system in cooperatives will follow a similar structure as the one used by the credit information bureau — a government agency that looks after fraud cases in the banking sector.
The task force consists of representatives from Nepal Federation of Savings and Credit Cooperative Unions, National Cooperative Bank, Nepal Multipurpose Central Cooperative Union and Nepal Agriculture Cooperative Central Federation. “The task force is devising the bylaws as per the recently enforced regulations of Cooperative Act 2017,” said Subba.
According to her, the federation formed the task force after conducting multilateral meetings with the ministry, Department of Cooperatives and Nepal Rastra Bank. “The draft of bylaws is at the final stage of completion and we will submit a draft to the ministry soon,” said Subba.
There are a total of 34,512 cooperatives across the country with 6.3 million members. Out of them, 13,578 are savings and credit cooperatives with 3.45 million members. The cooperatives have mobilised deposits totalling more than Rs300 billion according to data from the fiscal year 2017-18.
As of now, 12 cooperatives have been declared problematic by the government. Their financial conditions are poor due to unsound lending practices, exposure to the volatile real estate market and embezzlement by their promoters.
Among them, Oriental Cooperative is at the centre of the largest scam in the sector. As per the Problematic Cooperatives Asset Management Committee, a government mechanism created to oversee troubled cooperatives, the liabilities of Oriental amount to over Rs17 billion.
Provided the credit information system comes online, the cooperatives will have to report to the agency about their debtors. “If any debtors fail to pay back their loan in the given timeframe, they will be blacklisted under the system,” said Subba. Once blacklisted, they will not be able to procure a loan from any financial institution in the country.
Subba said that the system will also convey details of the debtors to the cooperatives while issuing the loan. “This will prevent the duplication of loans in cooperatives along with tracking the individuals who are members of more than one cooperative,” she added.
Subba said they were also holding talks with the credit information bureau to integrate the cooperatives into the existing system of the bureau.
The bureau has blacklisted 789 individuals in over one and a half months since mid-July of this fiscal year. So far, the bureau has blacklisted 14,478 individuals in the past three decades. Banks currently use the information provided by the bureau before issuing a loan to customers.
The regulation has maintained a minimum paid-up capital of Rs50 million to operate the credit information centre of cooperatives. While 60 percent of the amount has to be maintained by various associations of cooperatives, the remaining 40 percent will be contributed by the government agencies.
According to Subba, there will be a 15 member board in the proposed structure. The board will consist of an elected chairperson along with the registrar of the Department of Cooperatives and representatives from Nepal Rastra Bank and National Cooperative Development Board, among others, as members.
Subba said the credit information system is expected to work effectively once the Copomis, an online financial reporting system, is upgraded by the Department of Cooperatives.