The cooperative movement in the country has entered its 68th year. Looking at this long period of time, the challenges created by the anomalies seen in some of the financial cooperative institutions that conduct savings and credit transactions have also affected the financial cooperative institutions that are operating legally based on the community. When the legal provisions with autonomy were made in 1991 for the operation of cooperative institutions, it was found that there was a quantitative increase rather than a qualitative increase in the number of cooperatives that conduct financial transactions. In this, cooperative institutions were operated focusing on cities rather than rural communities.
In accordance with the then legal system, it was also seen that the Department of Cooperatives was somewhat eager to make the regulation more effective by issuing some instructions and standards from time to time. Even at the beginning of the sixth decade, there were examples of problems arising in city-centered cooperative institutions and some institutions migrating.
For the development of cooperatives as well as the effectiveness of the operation of cooperatives, the Federal Law of Cooperatives 2017 and Regulations 2018 were issued based on the federal structure based on the Constitution of Nepal 2015. This legal provision has made many provisions for the bases of operation and has special provisions for cooperatives engaged in savings and credit transactions, and it is also found that the provisions for penalties, fines, and punishments have been made stricter than the previous legal provisions. With the implementation of federalism in the country, the provinces and local levels have also been regulating cooperatives by making their own legal provisions. There is also a sense of competition in the regulation, supervision, and monitoring of cooperatives.
Despite the strictness of the penalties, fines, and punishments delegated to the current legal system and the provision of fines in the integrated directives issued by the federal department, the increasing discrepancies in cooperative organizations has become a subject of in-depth study. Not only this, but the Anti-Money Laundering Act is also a matter of direct concern to financial cooperatives. Despite so many legal structures and regulatory managements, where there has been a mistake in operating organizations in the spirit of cooperation and the collapse of cooperative organizations, it is necessary to take it as a serious matter.
Thus, the reason why the arrangements for the operation of cooperatives have not been effective so far is that the state has amended the current law and made provisions for the regulation and management of cooperative institutions engaged in savings and loan transactions, and the authority has already been established. In particular, the state seems to have failed to make provisions for the establishment of a credit information center, a debt recovery tribunal, a savings and loan protection fund, etc. For the regulation of cooperative institutions, provisions have been made in different sections and act which have specifically made provisions such as what can be done by the registrar or an officer authorized by the registrar and what can be done by a joint team of the ministry, Nepal Rastra Bank, provincial government, and local government.
Section 151 of the Cooperative Act provides for the formulation of standards, guidelines, or procedures that can be implemented and separate standards can be made in the case of institutions engaged in savings and loan transactions. The Cooperative Act, 2017 was amended in 2023 by adding (1a) to Section 151, allowing the Nepal Rastra Bank to formulate and implement standards for cooperatives that primarily engage in savings and credit transactions. The Cooperative Act, 2017 was amended through an ordinance in 2024, and the National Cooperative Regulatory Authority was formed, and provisions were made in Section 103 (h) for regulation, supervision, monitoring, regulatory standards, etc.
The effectiveness of the regulatory system has laid the foundations for future improvements. However, the current regulatory system and the revised legal system do not address the priority of resolving the problems of cooperative organizations and their affiliated members that have been in trouble in the past. Among the problem areas, there is a first need to make special arrangements to force members to repay the loans taken from the organization. It is very important to address and resolve the problems of cooperative organizations that have collapsed or were formed without legal investment.
