Kathmandu: In a major policy move aimed at addressing Nepal’s long-running cooperative savings crisis, the government has formally introduced a revolving refund fund to begin repaying depositors whose money has been trapped in cooperatives officially declared problematic.
The new mechanism, brought into force through the Operational Procedure for Establishment and Management of Revolving Fund for Refund of Savings of Members of Problematic Cooperatives, 2026, marks the first structured framework for actual cash reimbursement after years of promises, protests and incomplete commitments.
Issued by the Ministry of Land Management, Cooperatives and Poverty Alleviation and published in the Nepal Gazette, the procedure creates a dedicated “Chakriya Kosh” or revolving fund under the supervision of the Problematic Cooperative Management Committee.
The fund is designed to provide immediate relief to depositors first and then recover that outlay over time by liquidating cooperative assets, collecting outstanding loans and confiscating properties linked to fraud and embezzlement.
The broader policy direction is consistent with the government’s previously announced plan to establish a relief fund under the national cooperative regulatory system, though implementation had remained stalled until now.
Under the new arrangement, money will flow into the fund from four primary sources: direct government allocation, proceeds from the sale of troubled cooperatives’ assets, recovery from delinquent borrowers, and auction of property belonging to directors, managers, accounting committee members or employees found responsible for misappropriating depositor money.
One of the most aggressive provisions in the procedure is that the liability net does not stop with the accused individuals alone. Assets held in the names of their immediate family members living in the same household can also be frozen and auctioned unless those relatives can prove they had legally separated property ownership through formal partition. In practical terms, the state is creating a recovery model that treats family-held wealth as potentially attached to cooperative fraud liabilities.
This follows the recent judicial mood as well. Nepal’s Supreme Court, in a sweeping directive issued earlier this month, ordered state agencies to seize the assets of cooperative operators and loan manipulators found guilty and explicitly called for a relief mechanism prioritizing victims through recovered assets.
Depositors who had already filed claims under Section 112(a) of the Cooperative Act will be eligible for reimbursement, but the payment will be made only through bank accounts and only after ensuring there is no duplicate compensation from the cooperative itself. The depositor’s official balance as recorded in the cooperative’s computer system or formal books up to the day before the institution was declared problematic will be treated as the principal benchmark.
However, the refund will not be unconditional.
If a depositor also has an outstanding loan from the same cooperative, no refund will be made until that loan is settled. Likewise, directors, employees, managers and their household family members who are themselves under suspicion of involvement in embezzlement will not be eligible to receive their savings until all liabilities are cleared. If a particular deposit claim is under court dispute, the amount will remain frozen until the final judicial verdict.
The government has clearly chosen a politically sensitive prioritization formula: small savers first. Depositors with balances up to Rs 500,000 are placed at the top of the refund queue, with additional preference granted to single women, senior citizens above 60, Dalits, indigenous communities and persons with disabilities. This aligns with repeated public commitments made over the past year that the first phase of relief would focus on vulnerable low-value depositors rather than large institutional claimants.
If a depositor has money stuck in more than one troubled cooperative, the person will initially be allowed to receive reimbursement from only one institution. And if the revolving fund does not have enough liquidity to cover all pending claims, the committee can distribute available money proportionately on a pro rata basis.
The state has also opened the door for negotiated settlements between borrowers and savers. If a cooperative borrower and a depositor mutually agree to offset liabilities, they can apply to the committee for direct account adjustment instead of waiting for the full formal refund process.
But the most controversial dimension lies in how the revolving fund is being capitalised.
Although the government says the fund will eventually replenish itself through recovery and auction, the procedure explicitly allows Nepal Government money to be injected into the pool at the outset. That means taxpayer-funded public money will be used as bridge financing to compensate victims now, while the state chases uncertain future recoveries from cooperative fraudsters.
This has reignited a sharp moral and fiscal debate: should ordinary citizens’ tax money be used to pay for losses created by privately mismanaged or looted cooperatives?
Online and civic discussions are already reflecting that discomfort. Many citizens support helping small depositors who lost life savings, but there is also growing criticism that public funds should not become a blanket bailout unless recoveries from guilty operators are actually enforceable and transparent.
That concern is not theoretical. Government data show more than 54,000 depositors across 23 officially troubled cooperatives are still waiting for refunds totalling roughly Rs 38.25 billion, and that figure covers only the institutions formally categorized as problematic — not the much wider shadow of weak cooperatives across the country.
In effect, the revolving fund offers something Nepal’s cooperative victims have not yet had: a payment architecture. But it does not yet guarantee that the architecture has enough money, enough recovered assets or enough enforcement speed to satisfy the scale of public expectation.
So while the government has finally moved from slogan to mechanism, the harder question remains unanswered: is this a genuine depositor rescue plan financed by confiscated fraud wealth or the beginning of a taxpayer-backed socialization of private cooperative failure?
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