Thursday, April 11, 2019

Co-ops to be restricted from charging exorbitant interest rates

Cooperatives will now be barred from charging exorbitant interest rates on loans as the government has approved the regulations to the Cooperative Act 2017 that envisage a separate mechanism to fix the interest rate. The Cabinet last Monday approved the regulations one and a half years after the government enacted the Cooperative Act.
The cooperatives have been offering – to attract depositors – higher interest rates and charging the exorbitant interest rates on loans too as there is not restriction on the interest rate being offered by the cooperatives as of now. And also the saving and credit cooperatives in particular, have been out of regulatory radar in the absence of necessary regulations.
The regulations have been introduced to protect customers from being charged with exorbitant interest rates, according to the Department of Cooperatives. "In past years, a number of saving and credit cooperatives have embezzled money belonging to depositors who had been lured by hefty interest rates."
Oriental Cooperative – that landed in trouble – had also offered interest up to 22 per cent per annum to its depositors. It was declared problematic in 2013 after few years in operation. Oriental owes Rs 17 billion to its creditors including depositors, apartment buyers, the government, banks and financial institutions, according to the report of Problematic Cooperatives Asset Management Committee. "Under the regulation, a committee under the department will be formed to fix the reference interest rate based on the prevailing interest rate charged by the banks," the department said, adding that the committee will involve representatives from Land Management, Cooperatives and Poverty Alleviation and Finance ministries, Nepal Rastra Bank (NRB), Cooperative Development Board (CDB), National Cooperative Federation (NCF) and other concerned cooperative associations. "The committee will also assess the liquidity positions of the cooperatives while allowing them to fix the interest rates."

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