Nepal’s co-ops ordered to limit dividend pay outs and member withdrawals

An ongoing liquidity crisis in Nepal’s banks and financial institutions is hitting co-ops, it has been reported

An ongoing liquidity crisis in Nepal has led the country’s National Cooperative Federation (NCF) to advise its members against distributing cash dividends to its members, it has been reported. 

República reported on Friday that a newly established “co-operative facilitation mechanism” created by NCF made the call, just days after it had requested that co-ops limit member withdrawals to 5% of their deposits at a time. 

NCF’s president said the 5% limit was put forward after co-op members attempted to withdraw their savings from the country’s co-ops, and warned this would pose problems for co-ops with liquidity shortages. 

The demand for member refunds had been attributed in part to recent events regarding Gautam Shree Multi-Purpose Cooperative Limited, República reported. The co-op’s depositors recently filed a complaint with Nepal’s Department of Cooperatives and requested the return of their deposits, which has encouraged the request of deposits from other co-op members, against a backdrop of Nepal’s existing liquidity crisis.

Nepal has been suffering from a liquidity crunch since the start of the financial year, with banks and financial institutions unable to meet borrowers’ demand for funds as business activities have restarted following the Covid-19 pandemic.

Advisor to Nepal’s National Cooperative Development Board and co-operative expert, Gyanendra Paudel, told República that a slowdown in economic activities, including real estate, has created problems for the county’s co-op sector. 

As well as issuing guidance to the nation’s co-ops, NCF is advising co-ops refrain from purchasing immovable property and exercise good governance and risk management in order to make it through the challenging circumstances.