Government Unveils 'Good Governance Roadmap 2082' to Tackle Cooperative Sector Crisis

The government has unveiled a multi-dimensional reform blueprint through the 'Good Governance Roadmap, 2082' to resolve the crisis seen in the cooperative sector.

The roadmap, made public on Sunday, recommends arrangements for returning depositors' funds, restructuring the regulatory framework, tightening laws, and implementing a technology-friendly monitoring system. This suggestion comes against the backdrop of billions of rupees being stuck in problematic cooperatives across the country recently.

According to the roadmap, the government has given the highest priority to small depositors. It proposes immediately returning savings on a priority basis through the 'Deposit and Credit Guarantee Fund' after identifying members with savings up to NPR 500,000 among depositors of problematic cooperatives. It mentions issuing a public notice specifying a deadline for this and providing a legal guarantee for deposit security. The roadmap states that even if the amount cannot be returned from recovered assets, a guarantee must be provided for the return of up to NPR 500,000 from the guarantee fund.

To facilitate the return of small depositors' funds, the government has also put forward a plan to manage liquidity by issuing cooperative bonds if necessary. Furthermore, it mentions that savings exceeding NPR 500,000 should be distributed on a pro-rata basis, and a priority list for depositors must be prepared. A provision has been proposed whereby legal monitoring will be placed on the business transactions and income of the operators of problematic cooperatives until the savings are returned.

The roadmap has recommended stricter provisions for institutional reform. It proposes abolishing the current Department of Cooperatives and establishing an autonomous 'Cooperative Regulation Authority' with quasi-judicial and executive powers.

This authority is planned to be given powers such as blocking the passports of guilty operators, freezing bank accounts and assets, and confiscating and auctioning personal property. It is mentioned that only a Cooperative Division will remain in the Ministry for policy-making functions.

Additionally, it is proposed that a separate 'Dedicated Task Force' will be formed for each problematic cooperative, and a permanent structure modeled on an 'Asset Management Company' will be established for asset management. It is also stated that experts in financial analysis, forensic audit, and cyber regulation will be mandatorily included in the regulatory body.

Reclassifying the jurisdiction of cooperatives according to the federal structure is another important recommendation of the roadmap. It is proposed that the jurisdiction will be determined based on the cooperative's transaction amount: up to NPR 10 million at the local level, up to NPR 500 million at the metropolitan/sub-metropolitan level, up to NPR 1 billion at the provincial level, and above NPR 5 billion at the federal level. Furthermore, an 'auto upgrade/downgrade' system should be implemented where the level automatically changes upon exceeding the transaction limit.

Provisions have also been proposed to establish an integrated digital server for data exchange between the three tiers of government, create an inter-governmental supervision mechanism, and legally restrict operators declared problematic at one level from taking responsibility at another level. The policy adopted is that new cooperative registrations will only happen at the local level, while provincial and federal levels will be limited to regulation.

Under legal reforms, it is mentioned that the jurisdiction and business limits must be clarified by amending the Cooperative Act and Regulations. The 'One Person, One Cooperative' policy will be strictly enforced, and a provision to set a limit on individual savings will be introduced. Federations will be completely banned from conducting savings and loan transactions and will be limited only to promotional roles, as proposed.

A mandatory and incentive-based 'Merger' policy to merge sick cooperatives with strong institutions will be implemented, and AML/CFT related laws will be strictly enforced to prevent cooperatives from becoming a medium for illegal money laundering. Strict standards regarding the qualification, experience, and conduct of operators and officials will also be set.

Information systems between cooperatives, banks, and government agencies will be interconnected towards technology and financial good governance. It is mentioned that the Copomis system will be mandatory to create integrated digital data, and the transactions of institutions providing false information will be frozen. The roadmap recommends prohibiting cooperatives from investing in unproductive sectors like real estate or the stock market and encouraging investment in productive sectors.

Strict provisions are also proposed, including mandatory compliance with international financial standards, publication of quarterly financial white papers, and cancellation of registration for institutions that fail to conduct audits for three consecutive years.

While this government roadmap attempts to resolve the existing crisis in the cooperative sector, its effectiveness appears to depend on implementation. In the past, policy announcements were hampered by weak implementation, further complicating the problems. Therefore, how strictly the proposed stringent provisions are implemented in practice is now seen as the main challenge.