While cooperatives are a vital pillar of Nepal's socialism-oriented economy, the report highlights a dangerous shift: institutions are abandoning community-focused values to chase aggressive, profit-driven savings and loan transactions.
The commission revealed that a confusing multi-regulatory structure across federal, provincial, and local levels has crippled effective monitoring and inspection. Although thousands of cooperatives are registered under titles like agriculture, dairy, or consumer groups, the vast majority operate strictly as commercial financial entities.
Similarly, outdated regulations have allowed primary cooperatives to aggressively expand branches nationwide. This uncontrolled growth, coupled with investing savers' money into high-risk areas, has left the sector highly vulnerable.
The report also points out severe governance failures, including the misuse of corporate resources, single-person dominance, falsified financial audits, and collusion between auditors and management. Unlike the commercial banking sector, cooperatives suffer from a lack of integrated real-time data tracking, credit information centers, and functional deposit security systems to protect everyday savers.
"The social purpose of cooperatives has been weakened as institutions focus more on profit than their actual community objectives. With around 31,000 registered cooperatives, the state machinery simply lacks the manpower and technology to supervise them regularly" says Inquiry Commission Report
In order to prevent a total collapse of the sector, the commission has urged immediate policy and legal overhauls. The commission recommends halting new registration of new savings and credit cooperatives immediately, ban new branch openings, and gradually shut down redundant existing branches. Similarly, it recommends to categorize cooperatives strictly into production, consumer, or financial sectors, limiting financial transactions to a strict cap.
The commission also recommends forced mergers & dissolution of problematic co-operatives. It says encourage weak or defunct cooperatives to merge with stable institutions after rigorous risk assessments, and legally dissolve those violating financial discipline. Moreover, the commission recommends to base future registrations of new saving and credit co-operatives on strict criteria, including the financial health and capacity of the directors, alongside robust risk assessments.
