March 31: At a time when government analysis and reports have suggested that the cooperative sector is in trouble due to weak monitoring, the second-tier regulatory body proposed to regulate and supervise savings and credit cooperatives has been limited to the government’s plan.

Even though the government has been mentioning in its policies and programs and budget since the fiscal year 2060/61 that it will create a second-tier regulator to monitor the cooperatives, the process has not been carried forward yet. In recent years, the number of problematic cooperatives that are unable to return the depositors’ savings has increased.

The government is under pressure to establish a regulatory body as soon as possible. In the budget of the current fiscal year, the government has mentioned that a separate monitoring body will be formed to make the monitoring of cooperatives effective. However, the government has not prepared the plan on what kind of body it will create to monitor the cooperatives.

The Ministry of Land Management, Cooperatives and Poverty Alleviation has sent a proposal to the Ministry of Finance and Law for in-principle approval for the formation of regulatory bodies. Secretary Gokarnamani Duwadi said that the law-making process will be carried forward after the approval from the finance and law ministries.

"Due to the expectation that cooperatives work according to their own principles and rules, the work of creating a separate regulator was not a priority of the government," he said in a discussion program organized by the Nepal Cooperative Journalist Society on Friday.

The attempt to form a powerful regulatory body in the past was not possible due to the influence of groups with vested interest on the parliament. According to the constitution, the monitoring of cooperatives is currently divided between federal, state and local levels.

Stating that monitoring will not be effective when there are many regulators, Secretary Duwadi said that a strong regulator should be made so that the cooperatives across the country can be monitored in an effective way. He said that some laws should be amended to create such a regulatory body.

Minister for Cooperatives Balaram Adhikari has also said that the government will be tough to solve the problems of cooperatives. "The government will take strict measures to solve the problems in the cooperatives."

After the directors of some cooperatives fled after embezzling the money, the member depositors have been protesting on the streets.

Deputy Prime Minister and Home Minister Ravi Lamichhane is also accused of defrauding depositors in collaboration with GB Rai, owner of Suryadarshan Cooperative in Pokhara. The home minister has denied the allegations.

A recommendation committee led by member of the Planning Commission, Dr Chandrakant Raut has also suggested to make the regulation and supervision of savings and credit cooperatives effective and to establish a separate regulatory body for this purpose.

Former executive director of Nepal Rastra Bank and banking expert Nar Bahadur Thapa says that cooperatives also need a strong regulator.

“A crisis can occur at any time in financial institutions. Liquidity can be uncomfortable. For that, it is necessary to create a strong body that also provides the facility of the lender of the last resort,'' he said.

He added that the regulatory body should not have people from the agencies with conflict of interests and that experts with technical knowledge should be included in the board. He clarified that since the Central Bank works according to the Nepal Rastra Bank Act 2058, the Nepal Rastra Bank will not look into the cooperatives under anyone's instructions.

After the problems in the cooperatives increased, the central bank assigned two deputy directors to the Department of Cooperatives in 2070 help the department to monitor the cooperatives. Those employees returned after a year. Currently, the central bank has assigned three employees to the department for monitoring cooperatives. However, the officials of the department say that the cooperative sector cannot be improved through such monitoring alone.