Cooperative Ordinance Delivers Justice

The government promulgated the Cooperative Ordinance 2083 on April 30, 2026. The ordinance is aimed at taking action against cooperative fraud, regulating the cooperative sector in an effective and rigorous way and, more importantly, delivering justice to cooperative fraud victims. The cooperative sector is highly unregulated, giving way to irregularities on the part of some crooked operators. The depositors of cooperatives that have turned problematic have been languishing for years in the hope of getting back their hard-earned money. The newly promulgated ordinance has kindled hope in them that they will get back their deposits as the government has announced that the process of returning deposits will begin from the first week of Jestha 2083. 

To facilitate the return of deposits, the government will establish a revolving relief fund. The fund will have amounts deposited by the government, amounts received from the cooperatives concerned and other sources. The ordinance has empowered the Problematic Cooperative Management Committee (PCMC) to manage and recover funds of troubled cooperatives by selling movable and immovable property of debtors to return the deposits of depositors. Likewise, the Committee can also use the property, both movable and immovable, of embezzling operators to compensate the depositors. 

Irregularities

There are voices that the state coffers should not be used to return the deposits but the government has made it clear that such amounts will be recouped from the amounts received from the borrowers and operators of the troubled cooperatives concerned. The government has declared 21 cooperatives problematic. The practice of declaring cooperatives problematic began in 2018. A parliamentary probe committee found in 2024 that a whopping amount of Rs. 87.89 billion was embezzled in at least 40 cooperatives. This shows the sheer magnitude of irregularities in cooperatives. As per the PCMC, as many as 76,000 people have fallen victim to dishonest cooperative operators. 

The ordinance has made the PCMC strong to discourage the commitment of irregularities in cooperatives. There is a provision that the PCMC, even before declaring a cooperative problematic, can freeze the movable and immovable property, bank balances or shares of the operators, borrowers and people with authority or responsibility. Their passports can also be frozen so that they cannot flee the country. These provisions are very harsh but a necessity. 

The previous governments also assured the cooperative victims that they would get back their deposits. But no initiative was taken to that end in that political leaders, their relatives or friends, high-profile businessmen or other influential people were found involved in troubled and other cooperatives. As such, the governments hesitated to take action against the frauds. Now the Rastriya Swatantra Party (RSP) is in power. The ruling party has vowed to return deposits to cooperative victims within 100 days as part of its 100-point reform agenda. 

The ordinance has also provisions intended to bring about reforms in the cooperative sector. There are about 34,000 cooperatives in the country. But not all are active. Now every cooperative has to get a licence of operation from the National Cooperative Regulatory Authority. The Authority issues licences after scrutinising financial details of the cooperatives. This move will eliminate non-operating or inactive cooperatives. And the number of cooperatives is expected to drastically come down. Further, such licences need to be renewed every year on the basis of financial details. This will encourage cooperatives to engage in ethical, anomaly-free and transparent transactions. 

The ordinance bars district, provincial and central cooperative unions – called umbrella organisations – from engaging in deposit and credit transactions. They have to focus on the overall development of cooperatives under their jurisdictions such as capacity building, training and promotional work. But they are permitted to engage in deposit and credit transactions with member institutions.  

Cooperatives are often viewed as centres of money laundering. Cooperatives are required to maintain an integrated information system for every transaction. The disclosure of sources of deposits above Rs. one million is mandatory. Accounts with hidden or obscure records will not be recognised so as to curb black money and money laundering. Every account has to be maintained in a transparent way.Ceiling

The ordinance caps a ceiling of charging interest. As per the provision, a cooperative cannot charge interest together with service charges, penalties or other loan-related charges exceeding the principal amount, no matter how many years later the loan is repaid. This provision is meant to prevent cooperatives from charging usurious interest. This provision will make borrowers happy as they will not have to fall victim to exorbitant interest.  However, this provision will discourage long-term loans such as home loans and repeated renewals. Cooperatives may importunately demand settlement of loans before the total interest and other charges equal the principal amount. So borrowers may be hard pressed to repay their loans unlike at present.

With the promulgation of the ordinance, stricter regulatory standards and guidelines by the National Cooperative Regulatory Board, the Department of Cooperatives and the Nepal Rastra Bank (NRB) are expected. Cooperatives with a share capital or turnover of Rs. 500 million will be supervised by the NRB. At a time when the NRB has not been fully able to supervise the financial institutions under its jurisdiction, it will be difficult for the central regulator to monitor large cooperatives as well. However, a separate team will be formed for this purpose.

The cooperative sector is considered one of the pillars of the economy, contributing to the economy by meeting the financial needs of their members. Despite this, the sector has engendered gross irregularities at the cost of the deposits maintained by people – including single women, the elderly and people with disabilities. The sector must be strictly regulated and supervised so as to protect the interests of depositors and enable it to play a robust role in the financial sector of the country.   

(Maharjan has been regularly writing on contemporary issues for this daily since 2000.)