Kathmandu, Ashish Lamichhane — In a major move to resolve the ongoing crisis in the cooperative sector and ensure the safety of depositors’ money, the government has issued the ‘Cooperative (First Amendment) Ordinance 2026.’ Following its authentication by the President and publication in the Nepal Gazette, the new legal provisions have officially come into effect. This amendment tightens regulations on cooperatives and paves the way for strict surveillance of fraudulent directors.

1. Empowering the Regulatory Authority The amended Act has granted more power to the National Cooperative Regulatory Authority.

• Licensing and Registration: Cooperatives primarily engaged in savings and credit transactions must now register and obtain an operating license from the Authority. The Authority also holds the power to suspend these licenses.

• Interest Rates and Limits: The authority to set interest rate benchmarks and savings/credit limits, previously held by the National Cooperative Development Bank, has now shifted to the Authority.

• Monitoring: The Authority is now empowered to conduct audits and inspect the accounts of cooperatives.

2. Strict Definition of Family and Relatives To prevent the practice of hiding embezzled funds under the names of family members, the definition of ‘family’ has been broadened:

• Relatives: For male members, grandparents and parents-in-law are now included in the definition of family. For female members, parents-in-law are included.

• Separated Members: Family members who have legally separated their property or even divorced members are included within this definition to prevent asset hiding.

• Employees: Relatives working as employees in the same cooperative are also categorized as relatives of the directors/managers.

3. Refund Mechanisms and ‘Revolving Fund’ A ‘Savings Refund Revolving Fund’ has been established to return the money of depositors from troubled cooperatives.

• Asset Auction: To recover embezzled funds, the movable and immovable properties of directors, managers, or responsible employees will be frozen and auctioned.

• Family Assets Seizure: If the primary responsible person’s assets are insufficient to cover the debt, the law now allows the freezing and auctioning of assets or company investments held by family members, including those who have undergone legal property separation or divorce.

4. New Limits on Transactions and Dividends

• Dividend Cap: Cooperatives can no longer distribute more than 15% dividend to their members (previously 18%).

• End of Multiple Memberships: Individuals holding memberships in more than one cooperative must choose only one within the next two years.

• Interest Regulation: When capitalizing interest on loans, the total interest amount cannot exceed the principal amount.

• Restrictions on Federations: Cooperative Federations (Sangh) are now prohibited from engaging in savings and credit transactions. Federations currently doing so must phase out these operations within three years.

5. Other Provisions and Security

• Deposit Insurance: Cooperatives must mandatorily join the Deposit and Credit Guarantee Fund to secure savings and loans.

• Priority in Refunds: When refunding money from troubled institutions, priority will also be given to individuals who have paid advances for business purposes.

• Fines: The provision of fining responsible individuals up to NPR 500,000 for non-compliance remains in place.