After the implementation of federalism in the country, the powers of the state were divided among the federal, provincial, and local levels. As a result, some thematic areas that were on the list of common powers remained to be transferred. In this situation, the state dissolved 38 divisional cooperative offices, including the cooperative training office, and transferred cooperatives to the provincial and local levels.

The government issued the Cooperative Act-2074 and the Cooperative Regulations-2075, and based on this, a model draft of the 'Local Cooperative Act' was sent to all 753 municipalities. It was immediately seen that the government was working in line with the spirit of federalism. However, by handing over the sensitive cooperative sector linked to day-to-day economic transactions to the provinces and local levels without preparing adequate infrastructure to promote regulation, the common people understand that the government has now reached a state of 'making decisions in a hurry and regretting them later'.

In the current situation, the issue of returning savings is a major challenge for the state. From the street to the parliament, from tea shops to star hotels, cooperatives are now speaking. The debate on returning members' savings is not only heating up the urban environment, but it has also created a narrative that cooperatives are institutions that run away with the people's money.

This has raised concerns - won't this sector, which has played a significant role in increasing financial literacy, financial access and inclusion, increasing participation and leadership development, increasing income through small enterprises, and providing employment to millions, collapse? Cooperative workers, who have been working faithfully in the campaign to build an egalitarian society based on social justice by including the economically lower class people on the basis of equality and inclusion, are ashamed of this infamous situation today.

How and why did this sacred campaign finally become infamous? Scholars believe that the cooperative sector is collapsing due to lack of strict implementation of laws and rules, impunity, lack of transparency, poor internal governance, ineffective monitoring/evaluation, increase in bad loans, inadequate risk protection arrangements, etc. So, is there no government effort to solve the problem?

To understand the current state of the cooperative sector, we need to go back to the situation after 2048. At that time, the Cooperative Act-2048 was enacted. Taking advantage of the loopholes in the act, a limited group of people, especially urban-centered cooperatives, misused the act. Despite being under control during the Panchayat period, the Cooperatives Act-2048, in line with the principle of autonomy and independence, entrusted the responsibility of operating and managing cooperatives to the board of directors, but due to the infiltration of people with bad intentions, the act was misused.

The number of cooperatives increased. Along with this, corruption in cooperatives has flourished due to the inability to monitor all organizations. However, if the limited monitoring and regulation were done on the basis of honesty and morality, then the cooperatives would definitely not be enough in the current situation. Some cooperatives were left unbridled by trust, some directors and regulators were monitored in name only. And, due to covering up mistakes and haphazard registration, the organizations reached a problematic state.

After the problem of collecting savings from non-members and investing them and not being able to return the savings of members when they were asked, the first amendment to the Cooperatives Act was made in 2057 BS and a provision was made to allow savings and loans to be transacted only among members. However, with the weak implementation of the Act, such provisions, apart from sending a message that transactions with non-members should not be carried out, have not had a material impact on solving the problem.

Earlier, the Nepal Rastra Bank also monitored and supervised 34 savings and loan cooperatives that were allowed to conduct limited banking. However, later, the Nepal Rastra Bank gradually revoked the limited banking permission of those institutions. Although the National Cooperative Bank is still under the supervision and supervision of the National Cooperative Bank. However, since loans were made in violation of some institutional good governance standards in the past, cooperative banks are now suffering from the strong reform pressure of the National Bank.

Despite the common perception that ‘the Nepal Rastra Bank should monitor and supervise cooperatives that conduct financial transactions’, the National Bank has been reluctant. However, Nepal has been included in the ‘grey list’ of risks related to money laundering and prevention due to cooperatives. Not only is there intensive monitoring with the participation of the National Bank in cooperatives with large transactions exceeding Rs 500 million, but the involvement of the National Bank has been almost mandatory since the past while formulating regulatory standards for this sector. 

The National Bank had mentioned for the first time in the monetary policy of the fiscal year 2059/60 that ‘there is a need for a separate body to regulate, inspect and supervise savings and credit cooperatives’. The Government of Nepal had mentioned in the budget of the fiscal year 2061/62 that ‘a separate institutional arrangement should be made to regulate and supervise financial cooperatives’.

In the monetary policy from the same fiscal year, the National Bank also mentioned that it would make necessary arrangements towards establishing a ‘second tier institution’ as a separate supervisory body for the inspection and supervision of cooperatives and non-governmental organizations approved to carry out financial intermediation work. In the meantime, many study committees and task forces have also pointed out the need for a separate regulatory body to monitor and regulate cooperatives that mainly deal in savings and loans.

The report of the Gauri Bahadur Karki Commission, which was formed in 2070 to investigate cooperatives that deal in savings and loans, showed a list of 132 cooperatives in trouble. Based on the draft act suggested by the Karki Commission to solve the problem, a new Cooperative Act was issued in 2074. Realizing that the Cooperative Act 2048 did not solve the problem, especially since there was no provision for legal action against the guilty, the Cooperative Act-2074 replaced the previous act by including provisions for punishment.

It seems that only after the new Cooperative Act and rules were implemented, the federal government formed a Problematic Cooperative Management Committee, declared the cooperatives as problematic on the recommendation of the committee, and proceeded with the work of returning the savings of the members through the committee. The scope of work of most of the cooperatives declared problematic falls under the association. However, it is understood that the committee has fully returned the savings of the members from only three of the 23 cooperatives declared problematic so far.

As the actions taken so far have been only preventive, no real progress has been made in returning savings. What stopped the management committee from issuing a procedure to investigate and auction the assets of even members of a single household and recover the loans and accelerate the return of savings? It is understood that the draft procedure has now reached the Ministry of Finance to set up a revolving fund on behalf of the state and return the money of small savers. But why is there still a delay in approval? The problem cannot be solved sustainably unless the overall operating system of cooperatives is systematic and transparent.

In the context of intense pressure to return savings, the government has recently amended the Cooperative Act-2074 BS and formed the National Cooperative Regulatory Authority, which has not been established despite long-standing debate. This authority can exercise powers similar to district courts to regulate cooperatives that conduct the main business of savings and loans throughout the state of Nepal.

The main responsibilities of the authority include implementing/enforcing the registration, regulation, monitoring, supervision and reporting systems of cooperatives mainly engaged in savings and loans, giving instructions to the organizations, ensuring the security of the savings of savers based on regulatory standards, and implementing/enforcing the management information system of cooperatives.

Although some organizations have updated their bylaws and procedures after the issuance of the Cooperative Act and Rules, it is a bitter reality that most cooperatives that trade savings and loans worth crores in the city and market have been operating without amending their bylaws and procedures for years.

If cooperatives do not amend and update their bylaws as per the Act and Rules, how can the Act be considered implemented? The National Cooperative Regulatory Authority has currently issued Regulatory Standards 2082, Nepal Rastra Bank has issued Guidelines and Standards 2081 for Cooperatives that Trade Savings and Loans, and the Department of Cooperatives has also issued Integrated Guidelines regarding the operation of cooperatives mainly engaged in savings and loans. However, this is not enough.

The relevant regulatory body should give strict instructions to the organizations to immediately amend and update the regulations and procedures. The loan subcommittee must submit the details of the loan risk and the inspection and monitoring report to the general meeting, the formation of subcommittees, the need to receive training on cooperatives, only members who are members of the organization at the time of the announcement will have voting rights, etc. The organizations should keep the rules and regulations and instructions in their own regulations and update them. 

There is a practice of promoting cooperative regulation at all three levels on the basis of federalism. Since this has not been able to work as expected, the central government has now formed the National Cooperative Regulatory Authority with a clear provision that it can regulate at the provincial and local levels as well. If it cannot fulfill its role of monitoring and supervision by regularly contacting and coordinating with the governments of all three levels, the National Bank, and other stakeholders, it will not only be considered a failure in meeting the expectations of savers, but also a failure to fulfill its legal obligations.