NRB Tightens Credit Mobilization Standards for Cooperatives

Nepal Rastra Bank (NRB) has unveiled a draft directive introducing new standards to regulate the savings and credit activities of cooperatives. This move follows the government’s issuance of an ordinance to strengthen the management of the cooperative sector. The proposed directive, titled Directive and Standards for Cooperative Organizations with Savings and Credit Transactions, aims to enhance fiscal discipline, transparency, and efficiency within the sector.

The draft outlines several measures, including restrictions on savings collection and loan issuance. Cooperatives will be allowed to collect savings only from their members, with a maximum limit set at 15 times the primary capital fund. Organizations can borrow up to five percent of their total assets or 100 percent of the capital fund from financial institutions. District-level cooperatives will be restricted to collecting up to NPR 1 million in savings, while multi-district cooperatives may collect up to NPR 2.5 million, and those with national jurisdiction may collect up to NPR 5 million.

The guidelines also propose stricter rules for loan issuance. Only members with a minimum of three months of membership will be eligible for loans. A single member will not be allowed to borrow more than 15 percent of the primary capital fund, and loans without collateral will require deposits from at least two members. Additionally, loans will be capped at NPR 300,000 or five times the member’s savings, whichever is lower.

In terms of investments, cooperatives will be restricted to purchasing shares in cooperative banks, small farmers’ microfinance institutions, and government-issued bonds. Real estate purchases for office purposes will be limited to 25 percent of primary capital or 50 percent of reserve funds, provided the cooperative has operated profitably for at least three consecutive years without reserve losses.

To promote productive investments, the directive mandates that at least 50 percent of total loans be allocated to sectors such as agriculture, industry, and business expansion. Loans secured by immovable property will be limited to 50 percent of the collateral’s value in metropolitan areas and 60 percent in municipalities and rural regions. Furthermore, members depositing over NPR 1 million will be required to disclose the source of their funds.

NRB has invited feedback on the draft by February 12, 2024. The central bank anticipates that these measures will stabilize the cooperative sector, mitigate financial risks, and encourage investments in productive areas. Once implemented, the directive is expected to usher in greater transparency and accountability within Nepal’s cooperative framework.