Boon or Bane?

One fine morning a friend of mine went to withdraw his deposit from one of the cooperatives as he had to contribute for his sister’s wedding that was to take place in a few days. To his utter surprise his deposit was not as liquid as he had anticipated. A sweet girl behind the counter told him to wait for a few days as the cooperatives did not have the amount he wanted at the moment. Thanks god! He could withdraw the money, though belatedly. In the process he also realized the risks of depositing money in the financially vulnerable institutions. Not all the people are as lucky.

People are now finding that one after another cooperative finance companies are closing down their offices and the operators are absconding with billions of deposits. The news of the absconding promoters of the finance cooperatives is becoming a regular feature in the national newspapers.

The aforementioned facts are really gloomy and certainly raise doubts against the cooperatives. But not all the cooperatives are doubtful and deceitful. In fact, if we go by the spirit of cooperatives, it is a very crucial factor for the development of the country. The only problem with the cooperatives is with its monitoring and supervising aspect. And this problem lies particularly with the single-purpose or multi-purpose cooperatives that accept deposits, and lends.

Without the cooperatives the development of a mountainous country like Nepal with thinly scattered population and remote areas is very difficult. So the initiatives of cooperatives in mid-fifties and formulation of Cooperative Act in 1959 were considered as the beginning of judicious distribution of the wealth in the rural areas. The first cooperatives were started in 1956 in Chitwan, marking the beginning of institutional credit in the rural sector. Even the Agricultural Development Bank was established as Cooperative bank in 1963.

The spirit and objectives of the cooperative did not remain clean in the later days. Especially after the restoration of democracy, the Cooperative Act was manipulated as a tool to avoid Nepal Rastra Bank Act 1959. As such the cooperatives enjoyed the right to collect the deposits and lending loans without coming into the purview and regulations of the central bank, Nepal Rastra Bank. The only restriction for such cooperatives was that both depositor and creditor had to be its member. The restriction was very effective because not every people would be interested to become member of an organization, and even the management would not wish to increase the number of people to have a say in their decision making.

At present a new cooperative act is being drafted. Now it should be made clear that those who want to involve themselves in financial transactions business, should come under the direct control of the central bank. For this, even the supervisory and monitoring capabilities of NRB should be further improved.

Not all the finance cooperatives are cheating the public. But if they are not required to have certain CRR (Cash Reserve Ratio) or to maintain certain liquidity, it is very likely that when someone goes to withdraw even reasonably small amount he would find that the cooperatives would need some time to make the payment.