New Interest Rate Cap for Cooperative Loans, Maximum 13 Percent

 

Kathmandu, September 17. Cooperative institutions in Nepal can no longer charge more than 13 percent interest on loans provided to their members. The Office of the Cooperative Registrar has set the maximum lending interest rate at 13 percent, effective from today, September 17.

Previously, cooperatives were allowed to charge up to 16 percent interest on loans. The new rate was fixed following a recommendation from the committee formed under Section 51 of the Cooperative Act, 2017, as part of a review of the reference interest rate.

According to the office, cooperatives may set interest rates below 13 percent based on their financial condition, nature of business and requirements. The difference between the interest rate offered on savings and the rate charged on loans must not exceed 6 percentage points.

The new provision also seeks to prevent practices that increase the financial burden on borrowers. Cooperatives are prohibited from capitalizing accrued interest into the principal loan amount and charging additional interest on the increased amount.

Similarly, cooperatives that have decided to impose penalties cannot charge more than 5 percent of the outstanding interest amount as a penalty. Since all costs related to loans must be included in the interest rate, cooperatives are also prohibited from charging additional amounts under headings such as administrative fees, service charges, renewal fees or application fees.

Cooperatives must publicly disclose their interest rates through their websites or other appropriate means so that all members can access the information.

The new rules also prohibit discrimination in interest rates for loans or savings of the same nature among members, board members and officials, members of the accounts supervision committee and other subcommittees, managers and employees.

When providing loans, cooperatives must deposit the amount directly into the personal account of the concerned borrowing member. The directive also prohibits cooperatives from creating additional debt burdens by linking a member's personal loan liability to obligations beyond the amount of the loan personally taken by that member.