Thursday, July 18, 2013

Tighter controls urged on cooperative sector

Big cooperatives may have to publish their quarterly financial reports just as banks and financial institutions (BFIs) are required to do. This is one of the sweeping reform measures that a high-level committee led by the deputy governor of Nepal Rastra Bank (NRB) has suggested to regulate the cooperative sector.
The committee has recommended that cooperatives having an annual turnover over Rs 100 million have to compulsorily publish their quarterly financial reports. Till now, only BFIs have been making public their quarterly financial statements.
On Jan 27, the government formed the committee led by NRB Deputy Governor Maha Prasad Adhikari following a wave of complaints from depositors in troubled cooperatives. The committee submitted its report last week to Chief Secretary Lila Mani Paudel. Ram Krishna Subedi, a committee member and spokesperson for the Ministry of Cooperative and Poverty Alleviation, said the recommendations would not cure all the ills in the sector, but they would definitely help reduce malpractices if implemented effectively.
The committee has suggested setting a ceiling on the interest rate being paid by the cooperatives to their depositors. “The committee has shown concern at the interest rate being offered by savings and credit cooperatives to their depositors,” said one of the members of the committee.
As the interest rates offered by the cooperatives are higher than those offered by BFIs, the committee has concluded that the promised higher returns are the main factor drawing the common people towards them.
Besides, the committee has also suggested fixing a ceiling on deposits. According to the source, the recommended ratio of equity share to deposit is 1:10, which means cooperatives can accept deposits amounting to 10 times the size of their equity.
Likewise, preventing involvement of family members in the board, insuring deposits of up to Rs 200,000, conducting special auditing of big cooperatives by the department and barring publicity of the cooperatives are also among the recommendations.
The committee, which studied 27 troubled cooperatives including Oriental, Guna, Ugrachandi, Exim and Corona, has also suggested settling problems by forming a permanent body at the Department of Cooperatives. “A sub-committee can be formed with the involvement of depositors of troubled cooperatives at the department which will work on settling their issues,” states the report. It has also sought an amendment to the Cooperative Act 1992 saying that it was more promotional than regulatory.  The committee has also found lack of coordination within the financial sector as being a reason for its growing problems. “All the regulators of the financial sector including the Securities Board of Nepal, Insurance Board, central bank and the Department of Cooperatives have been urged to formulate an integrated policy if they have been getting in each other’s way,” added the source.
Meanwhile, in order to control multiple banking in the sector, the report has
recommended forming a credit information bureau to check whether a loanee has taken loans from a single cooperative or several. “The committee has asked to implement this measure immediately,” said Dakshya Poudel, a committee member, who represented the National Cooperative Association.
The committee has concluded that anomalies emerged in the cooperative sector after the central bank introduced a policy to control real estate transactions. “Many people are fin ding the cooperatives an easy way to utilize their income earned through illegal transactions.”  In order to control such transactions, the committee has recommended bringing the sector under anti-money laundering measures. The Money Laundering Prevention Act (Second Amendment) has required the cooperative sector to follow anti-laundering measures.
Similarly, the Financial Intelligence Unit, a body assigned to keep track of illegal financial transactions, has ordered cooperatives to report deposits above Rs 1 million and any suspicious transactions.
src : kathmandu post

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