The government refuses to increase the benchmark interest rate on loans granted by cooperatives – myRepublica

KATMANDU, January 9: The government has ruled out raising the benchmark interest rate for cooperatives at a time when cooperative operators have pressured government agencies to raise the interest rate.

Speaking on a broadcast Friday, Minister of Land Management, Cooperatives and Poverty Alleviation Shashi Shrestha said there was no room for cooperatives to increase interest rates because organizations already have higher interest rates. “As cooperatives should aim to give people respite at the grassroots level, they should instead consider lowering the interest rate,” Shrestha said at the 11th annual general meeting of the Cooperative Journalists Society Nepal.

In September 2020, the Department of Cooperatives (DoC) set a 14.75% interest rate cap for credit unions on their loans. Citing the shortage of liquidity in Nepal’s banking system and rising bank interest rates, cooperative operators recently pushed the sector regulator to reach at least 16.75 percent.

Gyan Bahadur Tamang, director of the National Cooperative Bank Limited, said that the cooperatives are struggling to manage their financial transactions within the given benchmark rate due to the persistent shortage of liquidity which has also plagued cooperative enterprises. “At present, the borrowing rate of banks has already exceeded 12%, and the cost of funds for co-ops has also increased accordingly,” Tamang said.

Although the co-ops cannot accept an interest rate higher than 14.75 percent right now, they have been accused of levying high fees on their borrowers in the name of service charges. Recently, the DoC set up a panel to study the revision of the benchmark rate on cooperative loans. “However, the regulator has just procrastinated to convene a stakeholder meeting,” Tamang said.

Meanwhile, Minister Shrestha also expressed concern about the rampant service charges levied by a number of co-ops from their members. She stressed the need for cooperatives to comply with existing laws to improve their demeaning image due to the embezzlement of depositors’ money by some savings and credit cooperatives.

“We have also noticed that local governments are issuing new licenses to cooperatives when there are already an overwhelming number of cooperatives operating in the country. The ministry will soon adopt a vision document as a roadmap to guide cooperative enterprises in the country, ”she added.

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