December 8: The Bagmati Province government has tightened the noose for cooperatives to disburse loan in the real estate sector. As per the new directives issued by the provincial government, cooperatives will be able to issue only 25 per cent of the total credit/loan in real estates.

The new provisions came into effect after the Ministry of Land Management, Cooperative and Poverty Alleviation implemented the Criteria and Provisions for Operation, Monitoring and Auditing of Cooperatives -2022 on Wednesday. The ministry implemented the new provisions stating that concentration of the loan in land and housing had increased the risk in cooperatives.

Nepal Rastra Bank has already set the limit for banks and financial institutions to disburse only 25 per cent of the total credit in housing and land.

While extending loan against collateral for housing and land, the ministry has directed the cooperatives not provide loans more than 40 percent of the total valuation.

Earlier, issuing the Unified Directives in June-2022, the Federal Cooperative Department had issued directives to the cooperatives to classify the credit on the basis of sectors and disburse at least 51 per cent of the total credit in productive and income-generating enterprises.

The new cooperatives standards by the provincial government have banned cooperatives from investing in overdraft, operators’ private businesses, gold and silver collateral. Similarly, cooperatives will not be able to float loan without any collateral. They may disburse the credit to customers only after the latter have deposited their money regularly for at least three months. Cooperatives are barred from considering interest as principal amount.

While floating the loan above Rs 1 million, they should have collateral’s valuation done by institutional valuators.

As per the existing provisions, cooperatives are registered with local, province and federal levels in accordance with their working area. Out of 30,000 cooperatives operating across the country, twenty thousand cooperatives are under the provinces’ jurisdictions.

With the country adopting the federal system, rights of cooperatives were transferred to the local and provincial levels. Implementation, however, has become ineffective. Bagmati Province’s Cooperative Registrar Balram Niraula said that lack of necessary laws and skilled manpower had made it hard for the management, regulation and monitoring of cooperatives despite their transfer to the local and provincial levels.

Out of the total cooperatives, 80 per cent are under local levels, 19 per cent under provinces and only 1 per cent under the federal government.

Failure on the part of local and province levels has led to the rise of malpractices in the cooperatives, said Niraula. He added that they were working to make the regulation and monitoring effective through new standards and criteria in Bagmati Province.

The new criteria and standards have envisioned province and district-level mechanisms to monitor cooperatives effectively. The province-level committee chaired by Province government secretary comprises Province Cooperative Development Board’s Vice-chair, Province Registrar, Province Cooperative Federation’s Chair, and representatives from National Cooperative Federation, National Cooperative Bank, among others, as members.

The committee will have ministry’s law officer as its member secretary. The committee has been assigned the rights to identify and monitor the cooperatives and prepare reports about them.

Likewise, new standards have envisioned a district-level monitoring and supervision committee. The committee has been delegated the responsibility to monitor and supervise the cooperatives and recommend to the province for necessary actions.