Today we have witnessed an important achievement. It has been one year since the establishment of the Cooperative Regulatory Authority.

It’s not just the anniversary of an organization, but the cooperative sector, a driver of Nepal’s economy, which is a bit sick today. It is also a policy twist to take the sector in a new direction.

Today, I would like to focus on three questions. First, why is there a need for a Cooperative Regulatory Authority? Second, how to strengthen it? Third, what support is expected from the minister, secretary and the ministry?

1. Why is the Cooperative Regulatory Authority necessary?

The history of Nepal’s cooperative movement is older than that of Nepal’s banks. When the co-operative was established in 2013 B.S., there was only one bank in Nepal, Nepal Bank Ltd.

The Co-operative Societies Act 2016 came and the Cooperative Rules were issued in 2018. In the first five-year plan period (2013/14-2018/19), 378 cooperatives were established and in the second plan period (2018-19-2021/22), 542 cooperatives were established. It was only after this that the second commercial bank, the Rastriya Banijya Bank, was established.

Nepal Rastra Bank (NRB) has started giving limited banking license to cooperatives operating savings and credit cooperatives after they failed to achieve financial access and financial inclusion even after opening a bank in foreign joint ventures in 2041 BS.

The Nepal Rastra Bank (NRB) had granted limited banking license to about 3 dozen cooperatives. The objective was to include the underprivileged and to invest local savings in local development. But in recent years, we have seen serious structural problems in the cooperative sector.

Savings and credit cooperatives began to engage in financial intermediation, similar to banks. But these institutions were not rationally regulated and supervised. Poor governance and risky investments were carried out in these institutions. And most sensitively, the protection of savings has been weakened.

Altogether, these actions led to three major risks. Consumer Protection Risk, Financial Stability Risk, and Dual Shadow Banking Risk. I would like to give an example of dual banking.

International organizations like the BIS, IMF, and the World Bank say that wherever there is a work of savings and loans, regulation and supervision are necessary. If financial institutions are not properly regulated, the cost will be borne not just by those institutions, but by the entire economy. ”

For this reason, the Government of Nepal wants to establish the Cooperative Regulatory Authority as an independent, autonomous, technical regulator with experts by amending the Cooperative Act. This institution is not only for cooperatives, but it can also affect the financial system as a whole. It is also envisioned as a tool for systematic risk management.

2. How to strengthen the authority?

There are four things that are essential for how to make our vision a reality, that is, how to make the authority effective.

First: Autonomy

Legal, financial and functional autonomy is essential for the regulator to be strong.

Second: Proportional Regulation

Not all cooperatives are the same. The concept of regulating small cooperatives in villages and cooperatives with billions in urban transactions on the concept of one size does not fit all.

Third: Technical Capability and Digital Supervision

Online registration and archiving

MIS based monitoring

Fourth: Structural complementary entities

as envisaged by the Act

Credit Information Center (Section 81),

Debt Recovery Tribunal (Section 82),

Savings and Credit Guarantee Fund (Section 101)

Stabilization Fund (Section 102)

3 Requirements from the Ministry:

We expect four clear supports to strengthen the NRA.

1. Policy continuity and political support

Regulation is sometimes unpleasant. But at the end of the day, there needs to be political clarity that is what benefits everyone. The spirit in which the authority was established should not be allowed to die.

2. Sources and Manpower

Regulation of thousands of cooperatives is not possible without adequate budget, skilled manpower and training.

This is not an expense, it is an investment currently being made to prevent a bigger crisis in the future

3. Intergovernmental Coordination

We expect a clear role between the federal, provincial and local levels, clear information flow, and coordination and not duplication.

4. Appropriation of the amount proposed by the Authority as seed capital in the Circular Fund for the refund of the amount of co-operative victims

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If cooperatives are weak, the poor and small savers will be the first to suffer. But if the regulator is weak, even a good cooperative will be discredited. Therefore, let’s strengthen the Cooperative Regulatory Authority. Let no one think that the cooperatives will be strengthened by weakening the authority. Today, Nepal’s banks and financial institutions take pride in the fact that Nepal Rastra Bank inspects us. Let’s create an environment where cooperatives can also be proud.

The Authority has been established to bring the cooperatives which are the carriers of Nepal’s economy in a positive rhythm for regulation. There is a history of cooperatives in Nepal even before the inception of banks. Cooperatives have played an important role in financial mobilization.

The problem has arisen due to the financial intermediation of savings and credit cooperatives like banks, poor governance and attention to non-member transactions. The Cooperative Regulatory Authority has been established to manage the dual banking and shadow banking of Nepal.

Guru Prasad Poudel, Executive Director of Nepal Rastra Bank (NRB) and Director of Cooperative Regulatory Authority (CAA)