DoC fixes 25 pc cap on land, housing loans

The Department of Cooperatives (DoC) -- the cooperative regulator -- has issued fresh standard for cooperatives that, among others, restrict the cooperatives from lending more than 25 percent of its total investment on land and housing.

It also limits cooperatives from lending more than 40 percent of the total project cost to their members.

Though Nepal Rastra Bank (NRB) has limited lending of cooperatives on land and housing sector to 25 percent, a study carried out by DoC had revealed that some of the cooperatives were lending as much as 93 percent of their total investment on the sector.

The Standard on Cooperatives Registration, Operation, Auditing, Monitoring and Regulation, which comes into effect from April 14, also incorporates a provision that makes it mandatory for cooperatives to have 20 percent of the total share capital as paid-up capital. Cooperatives have also been restricted from purchase shares of other cooperatives and to invest in shares and loan of other firms.

“The new standard has attempted to regulate and make cooperatives responsible to end most of the anomalies seen while issuing loan, accepting deposits and conducting auditing” Sudarshan Dhakal, registrar of DoC, told Republica on Monday.

Once the new standard comes into effect, members of the same family cannot contest for the election of board of directors and member of account committee that sanctions loans. Those who have outstanding loan at cooperatives and are blacklisted by banks and financial institutions also cannot file candidacy for the board of directors and account committee member unless their dues are cleared.

Similarly, membership at cooperatives of similar nature will not be allowed if someone has secured membership of one cooperative within a district. The new standard also restricts cooperatives from organize annual general assembly in a lavish manner. It bars employees of DoC from attending the general assembly of cooperatives in a bid to avoid employees from falling under the influence of cooperatives.

The new standard has clearly stated that cooperatives can issue loan only to their members and accept deposit for the propose of issuing loans, beside provisioning that no cooperative can collect deposit 10 times more than its core capital.

In an effort to discourage arbitrary fixation of interest rates, the DoC has fixed maximum spread rate at 6 percent. The standard also asks cooperatives to appoint institutional evaluator to determine cost of projects in case lending exceeds more than Rs 1 million. It also bars cooperatives from issuing loans to the members, who have not been depositing cash at the cooperatives for more than three months. It allows cooperatives to levy a maximum of one percent of total lending as service charge.

The standard categorically states that cooperatives involved in issuing loan to non-members, violating jurisdiction, investing deposits on private business of promoters and misappropriating deposits would be treated as fraud cases and will be referred to police for action.

Once the new standard comes into effect, saving and credit cooperatives are required to maintain liquidity worth 15 percent of the total deposits. It bars cooperatives that have accumulated loss from distributing bonus.

The new standard also envisages setting up Cooperatives Promotion Fund to help cooperatives that are facing financial risk.

Source:myrepublica

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