Uttam Maharjan

The Department of Cooperatives issued monitoring guidelines for cooperatives on August 7 pursuant to Sub-sections 1 and 2 of Section 151 of the Cooperative Act, 2074. The guidelines aim at promoting good governance in cooperatives as lack of the same is acutely felt.
There are over 35,000 cooperatives scattered across the country. With the adoption of the federal system, around 29,000 cooperatives are under the supervision of local bodies, and around 6,000 cooperatives under the state governments. Only 118 cooperatives are under the jurisdiction of the Department of Cooperatives.

Sheer size
In a small economy like ours, the number of cooperatives is really large. Due to their sheer size, it has been difficult to monitor them. With the wave of constituting one organisation after another in the wake of the restoration of multi-party democracy in the country in the 1990s, the number of cooperatives has surged drastically, especially after the promulgation of the Cooperative Act, 1992, and a situation has come when they need to be reduced. That is why as in other banks and financial institutions, the government is trying to lower the number of cooperatives through merger and acquisition.
Cooperatives have been instituted with the sacrosanct goal of speeding up socio-economic development, especially in rural settings. Uplifting the standard of living of the rural poor through financial means such as by giving rural folks small loans so that they can undertake small-scale businesses or invest in agriculture to increase production is what cooperatives are all about. But it is a paradox that cooperatives are concentrated in urban areas and are being run on the principles of banks rather than their own. Cooperatives in urban areas are considered mini-banks with easy access to credit; however, lending rates are higher than those levied by banks.
There are many anomalies in cooperatives for inadequate inspection and monitoring by the concerned regulatory authorities such as the Department of Cooperatives. Fiscal discipline is grossly lacking in most cooperatives. That is why events like operators or promoters decamping with depositors' money have frequently surfaced. Further, some cooperatives go bankrupt due to mismanagement of loan portfolios such as non-recovery of loans disbursed to promoters or their relatives without collateral or with inadequate collateral. To stem such anomalies and make cooperatives more responsible, credible and reliable, the guidelines have been issued.
There are several problematic cooperatives in the country, one of the notorious cooperatives being Oriental Cooperative. The cooperative is yet to refund a whopping Rs. 8.3 billion to its depositors. Despite several efforts at the government-level, the case has not been solved yet. The Problematic Cooperatives Asset Management Committee, a government mechanism, looks after problematic and troubled cooperatives.
The new guidelines allow the Department of Cooperatives and other concerned authorities to conduct on-the-spot inspection and supervision of any cooperative. What is important is that there should be good governance and financial discipline in cooperatives to preserve the interests of depositors. It is imperative to preclude operators or promoters of a cooperative from thinking that it is their family business. Cooperatives are not family business enterprises; they are community-based organisations designed to foster communal development.
Now, cooperatives have become an integral part of the economy. They are considered one of the three pillars of national development. The new guidelines provide for harsh punishment up to ten years in prison for grave offences based on transactions. The provision obviously aims at preventing irregularities in cooperatives, thus promoting goodwill, good governance and financial discipline.
The Cooperative Act, 2074 also provides for harsh punishment. The punishment may be imprisonment or fines or both. Imprisonment may range from one year to ten years depending on the degree of offences. The Act has provision for punishment for grave offences like misuse of deposits and loans such as use of deposits for purposes other than those stipulated in the Act; disbursement of loans beyond the limit without collateral; embezzlement of funds- deposits or share amounts; disbursement of loans in such a manner that the loans cannot be recovered; taking of loans by submitting false documents; investment of depositors' money in violation of the Act; availing of or disbursing loans in the name of fake enterprises; disbursement of loans on the basis of over-valued collateral; disbursement of loans on the basis of inflated project costs; and other acts in contravention of the Act that cause harm to organizations.
On the other hand, fines may be a specified amount or an amount equivalent to the claimed amount. The new guidelines also provide for imprisonment up to ten years, which is as provided for in the Act. Therefore, cooperative operators or promoters should not take the guidelines as otherwise.

Monitoring
The time has come for giving a shot-in-the-arm to cooperatives. As most cooperatives have been under the jurisdiction of local bodies, the local bodies should take the initiative in bettering the lot of cooperatives. But it seems the local bodies have not paid attention to this matter; they are busy managing their own affairs. A separate unit needs to be established in every local unit to look after cooperatives in its area. The state governments also need to develop a mechanism to look after and monitor cooperatives under their jurisdiction. This is because as per the new guidelines, cooperatives can be monitored by local- and state-level authorities.
In the final analysis, all cooperatives should strictly abide by the Cooperative Act and Regulations as well as the newly issued guidelines for the promotion of good governance, transparency of transactions and financial discipline.

(Former banker, Maharjan has been regularly writing on contemporary issues for this daily since 2000. uttam.maharjan1964@gmail.com)