Kathmandu: Nepal Rastra Bank (NRB) has introduced a draft directive aimed at regulating the operations of savings and credit cooperatives. This follows the government’s issuance of a new ordinance to manage the cooperative sector, with the goal of ensuring transparency and discipline in its financial activities. The draft, titled 'Directive and Standards Issued for Cooperative Organizations Having Savings and Credit Transactions,' has been made public for feedback, with stakeholders invited to submit suggestions by February 12.

The directive includes stringent provisions on savings collection, restricting cooperatives from accepting deposits from non-members. Savings collection limits have been set at 15 times the cooperative's primary capital fund, while borrowing from banks and financial institutions is capped at 5% of total assets or 100% of the capital fund. Additionally, cooperatives with jurisdiction in a single district can collect up to Rs 1 million in savings, whereas those operating across multiple districts can collect up to Rs 2.5 million or Rs 5 million, depending on their coverage area.

The draft also tightens loan disbursement rules. Cooperatives can only issue loans to members who have been with the organization for at least three months, and the maximum loan per member cannot exceed 15% of the cooperative’s primary capital fund. Loans without collateral are limited to five times a member’s savings or a maximum of Rs 300,000, whichever is less. Furthermore, cooperatives must utilize the deposits of at least two members to issue loans without collateral.

Investment by cooperatives is also being regulated. They will be allowed to invest only in shares of cooperative banks, small farmers’ microfinance institutions, and government bonds. Investments in shares or debentures of other organizations are strictly prohibited. Similarly, cooperatives can purchase land or buildings for office purposes only if they have been continuously profitable for three years, with the expense capped at 25% of the primary capital or 50% of the reserve fund.

The directive emphasizes the need to focus on productive sectors, requiring cooperatives to disburse at least 50% of their total loans to areas such as agriculture, industry, and business expansion. Loans against immovable property are capped at 50% of the collateral value in metropolitan and sub-metropolitan cities and 60% in municipalities and rural areas.

The NRB expects these measures to address the challenges faced by the cooperative sector, particularly issues of mismanagement and risky financial practices. The central bank believes the reforms will promote fiscal discipline, transparency, and a greater focus on productive investments, ultimately strengthening the sector's contribution to the national economy.