New Guidelines and Standard for Saving and Credit Cooperatives

A look at Nepal Rastra Bank’s new directive tightening deposit limits, loan classification, capital adequacy, and governance standards for savings and credit cooperatives — issued after a string of cooperative-sector defaults exposed serious gaps in oversight.

Cooperatives in Nepal are member-owned, member-run institutions built around the principle of “one member, one vote,” giving every member an equal say regardless of how much capital they have put in. The movement dates back to 1903, and it has grown into a major channel for financial inclusion, particularly in communities formal banks reach less easily.

The numbers bear that out: Nepal Rastra Bank’s Financial Stability Report for 2023/24 counted 31,450 cooperatives with roughly 7.85 million members between them, a combined member capital fund of NPR 94.72 billion, deposits of NPR 478.11 billion, credit disbursed of NPR 405.30 billion, and close to 94,002 direct jobs created.

But the sector has also been through a rough patch. A number of cooperatives have been unable to return members’ deposits, largely because boards and senior management misused funds — a problem traced back to weak regulatory oversight, management overriding internal controls, poor governance structures, political interference, weak financial management, and members who simply did not have enough visibility into what was happening with their money.

In response, the government amended the Cooperative Act and set up the National Cooperative Regulatory Authority (NCRA) to tighten supervision, protect members’ savings, and push the sector toward more transparent, sustainable growth. Nepal Rastra Bank has also stepped in directly, issuing its own directives and standards for savings and credit cooperatives under the Nepal Rastra Bank Act, 2058 and the Cooperative Act, 2074 — and the NCRA has followed with parallel standards of its own.

What follows is an overview of the key provisions introduced by these directives.

01Introduction and Executive Summary

These directives apply to every savings and credit cooperative institution formed under Section 3 of the Cooperative Act, 2074 whose primary business is savings and credit — and they have been in force since 21 Chaitra 2081 (3 April 2025).

Taken together, the provisions build a considerably more disciplined institutional and financial framework for cooperatives nationwide, bringing their practices in line with current economic conditions, risk-management expectations, and governance norms.

Perhaps the most significant single change is the introduction of a capital fund requirement — something previously reserved for banks — which now compels cooperatives to hold a minimum buffer of capital against potential losses.

02Provisions Related to Financial Resource Mobilization

Limitations on Deposit Collection

A cooperative can only take deposits from its own members, and total deposits are capped at 15 times its primary capital fund. Per-member deposit limits also apply, based on how widely the cooperative operates:

Deposits taken before Poush 14, 2081 have to be brought within these limits within two years of that date — by Poush 13, 2083.

Cooperatives can run normal, recurring, and fixed-term deposit accounts with terms of up to three years, though recurring deposits need to make up at least 25% of total deposits collected. For monitoring deposit and borrowing limits, the relevant figures are the primary capital, capital fund, and total assets from the previous quarter.

Any member depositing more than NPR 1,000,000 has to disclose where the money came from, and cooperatives are required to have a General-Assembly-approved deposit mobilization guideline in place.

Limitation on Borrowings From Banks and Financial Institutions

Cooperatives can borrow up to 5% of their total assets from banks, financial institutions, or cooperative banks, capped at 100% of their capital fund overall. An exception applies to cooperatives where 51% or more of their lending is backed by collective guarantees — they can borrow up to 20% of total assets, or ten times their capital fund, whichever is lower.

03Provisions Related to Loan Limits, Classification and Management

Lending Restrictions and Conditions for Cooperatives

New members have to wait at least three months before they are eligible for a loan. Per-member lending is capped at 15% of primary capital.

Collateral-free loans are available to members with recurring deposit accounts, up to five times their recurring deposit balance or NPR 500,000, whichever is lower — but two other members have to guarantee the loan.

Board directors can only borrow against their own deposits with the cooperative, not otherwise. And outside of specialised cooperatives, large cooperatives (defined below) have to put at least 50% of total lending toward productive sectors — agriculture, industry, business operations or expansion — with a compliance deadline of Ashadh-end 2083 for anyone not already there.

Two definitions matter here: a specialised cooperative is one formed around a specific profession under Section 3(5) of the Cooperative Act, 2074. A large-scale cooperative is one whose latest audited financials show deposits or loans above NPR 25 crore.

Cooperatives can offer a moratorium on agriculture, industry or business loans, as long as it fits the purpose of the loan and the Board signs off — and once the moratorium ends, repayment instalments cannot be spaced more than three months apart.

Where a cooperative takes out its own loan from a bank, financial institution or cooperative bank using a borrower’s pledged property as security, it cannot borrow more than what it originally lent that borrower — though this does not stop the cooperative from pledging a director’s property for its own institutional borrowing.

Permissible Investment Areas for Cooperatives

Cooperatives can only invest where the law specifically allows — mainly shares in licensed cooperative banks and microfinance institutions, plus membership in unions or federations recognised under the Cooperative Act, 2074.

Cooperatives that have posted three straight years of net profit, carry no accumulated losses, and meet the minimum capital fund requirement can buy or build land and buildings through a competitive bidding process, capped at 25% of primary capital or 50% of the reserve fund, whichever is lower — anything over that limit gets deducted from the primary capital calculation. Any such purchase or construction needs general assembly approval by at least a 51% majority vote, and the regulator has to be notified within 30 days of the transaction.

Collateral Requirements and Restrictions in Cooperative Lending

Loans secured against a member’s own deposit cannot exceed 90% of that deposit. For loans secured by immovable property, the loan-to-value cap is 60% in sub-metropolitan or metropolitan areas and 70% in municipalities or rural municipalities.

Collateral has to belong to the borrower or an immediate family member — any loans made on a different basis before this rule took effect need to be brought into line by Ashadh-end 2083. Project-secured loans can go up to 80% of total project cost. And cooperatives cannot lend against their own shares held by a member.

Loans Classifications and Provisioning

Loans get classified by how current the borrower is on instalments or interest, which determines the loan loss provision (LLP) required:

Rescheduling or restructuring a loan is only allowed in exceptional cases, and only where the regulator has issued a guideline permitting it — it needs a written, reasoned request from the borrower and Board approval. If any single instalment goes overdue, the whole loan gets reclassified based on how overdue it is, with provisioning adjusted accordingly.

Other Regulations on Collateral

Once a loan is fully repaid, the cooperative has seven working days from the borrower’s written request to release the collateral. If an auction to recover a defaulted loan fails, the cooperative takes ownership of the collateral at whichever is lower — market value or the amount still owed — and books any resulting shortfall as a loss for that fiscal year. Property taken over this way has to be sold as soon as practical, and a 100% loan loss provision applies from the date it is taken into possession.

Cooperatives have to report their loan classification and provisioning to the regulator, in the prescribed format, within 15 days of each quarter’s end.

04Provisions Related to Liquid Assets

Liquid Assets to be Maintained

Cooperatives must hold at least 15% of total deposit liabilities in liquid assets, defined as: cash in the cooperative’s own vault; investments in government bonds; balances in accounts at NRB-licensed banks and financial institutions; balances in accounts at licensed cooperative banks; and 90% of any fixed deposits held at those BFIs or cooperative banks, capped at 5% of total deposit liabilities.

If a cooperative has borrowed against its own fixed deposits or government bonds, the outstanding balance on that borrowing gets subtracted when calculating total liquid assets.

Liquid assets are calculated monthly using a weekly average, and the resulting report has to go to the relevant regulator within seven days of month-end.

05Provisions Related to Interest Rates and Service Charge

Interest Rate Determination

Interest rates are set under Section 51 of the Cooperative Act, 2074 and have to apply uniformly across all members. The spread between deposit and loan rates cannot exceed six percentage points, calculated using the weighted average method — and published rates, which may be revised monthly, must be the same for every member.

Other Provisions on Interest and Service Charge

The Board approves interest rates, calculation methods, penalty terms and service charges. Loans can only carry a service charge, interest, and penalty interest — any extra charges, such as the cost of pulling blacklist information, can only be passed on at actual cost. Interest accrues daily on the outstanding balance. Details on loan and deposit rates, interest and penalty methods, and service charges must reach the regulator within 15 days of each quarter’s end.

06Provisions Related to Capital Funds

Core Capital

Cooperatives must maintain core capital of at least 4% of total risk-weighted assets. Core capital is defined as share capital plus the reserve fund, loss-reimbursement fund, and accumulated profit or loss — and the ratio is core capital divided by risk-weighted assets, multiplied by 100.

Supplementary Capital

Large-scale cooperatives also have to measure supplementary capital, on top of the core capital requirement, and maintain a total capital fund ratio of at least 8% of risk-weighted assets — calculated as core capital plus supplementary capital, divided by risk-weighted assets, multiplied by 100.

Components of Supplementary Capital

Supplementary capital is made up of: total loan loss provisions held against performing loans; any extra provisioning against non-performing loans, capped at 1.5% of risk-weighted assets; the asset revaluation reserve, capped at the lower of the actual reserve balance or 2% of supplementary capital; and any other reserves or funds without a defined specific purpose. When calculating the total capital fund, supplementary capital cannot exceed core capital.

Risk Weighted Assets

Risk weights vary by asset category:

Reporting of Compliance with Capital Fund Ratio

Cooperatives have three months from the directive’s implementation date to report their capital fund position to the regulator. Anyone falling short on either the core capital ratio or the total capital fund ratio has to submit an action plan for closing the gap by Ashadh-end 2083.

Capital fund monitoring is based on the balance sheet and profit and loss account from the most recent quarter, certified by the Accounts Supervision Committee, and has to be reported to the regulator in the prescribed format within one month of each quarter’s end.

No dividends can be declared or distributed until the minimum capital fund requirement is met — any shortfall has to be closed either by raising fresh share capital from members or by transferring profits into the General Reserve Fund.

Reserve Fund

Cooperatives must maintain a reserve fund as required under the Cooperative Act, funded by: at least 25% of the year’s net profit; capital grants from any cooperative, association, or other entity; proceeds from selling fixed assets; and amounts from any other source.

07Provisions Related to Corporate Governance

Board of Directors

The Board must have between five and nine members, including the Chairperson, with at least 33% women’s representation where feasible. No more than one person per family can serve as an office bearer on both the Board and the Audit Supervision Committee in the same term, and no director can serve more than two terms. Nobody can be a director or office bearer at more than one institution at a time.

To stand for election, a candidate cannot be currently blacklisted — or if previously blacklisted, must be at least three years past removal. Directors cannot approve or disburse loans while acting as guarantor on them, and any director who gets blacklisted, or whose loan (or a loan they guaranteed) turns into bad debt, is automatically disqualified — except where separate rules apply to institutions already in difficulty. Directors also cannot use their position for personal gain or in ways that harm the institution.

Responsibilities and Conduct of the BOD

The Board is responsible for: setting up operational procedures for staff administration, deposits, and loan disbursement and recovery; acting on findings from the Account Supervision Committee and internal or external audits; supplying information to regulators and complying with their directions; publishing general-meeting-approved financial statements in the regulator’s prescribed format; setting a code of conduct plus minimum qualifications and experience for directors, the CEO, managers and officers; and staying out of day-to-day operations.

In cooperatives with annual turnover above NPR 20 million, a director cannot simultaneously be an employee — anyone in both roles has three months from the directive’s effective date to give up one of them. All board members and staff also have to file a personal-property declaration, in the prescribed format, within 35 days of each fiscal year-end.

Qualifications of Chief Executive Officer/Manager

No outstanding loans from the cooperative; no ongoing criminal proceedings; not currently blacklisted, or at least three years past removal from a blacklist; no involvement with other cooperatives; no political party membership; minimum age 21; a bachelor’s degree for large cooperatives, or a Proficiency Certificate Level / 10+2 qualification for others; and no immediate family on the Board.

Cooperatives have to notify the regulator of a CEO appointment within 15 days. The CEO serves a four-year term, renewable once based on performance — for appointments made after this directive took effect, that first term counts as term one, with only a single reappointment allowed after it. The Board sets the CEO’s salary and benefits, all of which must be fully disclosed in the annual report, and nothing beyond what is disclosed can be provided.

Conduct to be Followed by Employees

Employees need written management approval before taking on part-time work or other outside professional activity, and it is only granted if it does not conflict with the cooperative’s interests. They are only entitled to the loans and facilities set out in the approved employee bylaws — nothing extra, aside from the savings deposit facility they get as members. The cooperative also has to set aside at least 2% of the prior year’s total salary and allowance spend for staff training and development each year.

08Other Miscellaneous Provisions

Member Rights and Protection Measures in Cooperatives

Membership stays valid for as long as a member has an outstanding loan or deposit with the cooperative. No service fees can be charged beyond what is set out in the applicable Acts, Rules and regulatory directives.

Cooperatives have to give members a short statement or booklet covering: deposit account details; membership admission fees and procedures; applicable interest rates and how they are calculated; electronic transaction fees; loan service and renewal fees; and what a member is entitled to receive if they cancel their membership.

New members and loan applicants get financial-literacy orientation before being admitted or approved. Any change in savings or loan interest rates has to be communicated to members promptly, loan disbursements have to go through the member’s own account at the cooperative, and every cooperative needs a system for handling member complaints — large-scale cooperatives additionally have to appoint a dedicated grievance-hearing officer and an information officer.

Other Compliances

Cooperatives have to fully comply with the Money Laundering Prevention Act, 2064 and the Department of Cooperatives’ related directives. They are required to join the Credit Information Centre, with credit-check requirements, fees, and blacklisting procedures for loans above a set threshold governed by the regulator’s own directives.

A number of activities are off-limits entirely: off-balance-sheet transactions such as letters of credit or guarantees, overdraft loans, trading goods commercially, buying property to trade, lending against gold or silver, foreign currency dealing, and running lottery or gift schemes.