How Nepal's savings cooperatives became shadow banks, and who is being paid back

For many Nepali households, the nearest place to keep savings has not been a bank branch but a cooperative: a member-owned society that takes deposits, pays interest and makes loans. Hundreds of these institutions have stopped repaying their members. The 23 that the federal government has formally declared troubled owe about Rs 46bn, roughly $297m, to some 76,000 depositors, The Kathmandu Post reported in July. Government-backed refunds began only in May 2026, and the sums returned so far are small beside what is owed.

This guide explains how cooperatives came to work like banks without being supervised like them, how large the losses are, who is being repaid and how, and what the new rules change.

How savings societies became shadow banks

The sector grew quickly. A parliamentary report summarised by Online Khabar in December 2024 counted 881 cooperatives in 1991/92 and 22,859 by 2010/11. By the time of that report there were about 31,500, with 7.3 million members, 56% of them women.

The trouble has centred on savings and credit cooperatives, particularly in towns and cities, which the parliamentary report identified as the main source of abuse, according to Online Khabar. These societies collected deposits from the public and lent them out, as banks do. Unlike banks, they were not supervised by Nepal Rastra Bank, the central bank. Under the Cooperative Act of 2017 they were registered and overseen at federal, provincial or local level depending on their reach, and more than 80% fell under local governments, Nepal News reported in 2025. Municipal offices were left to oversee what were, in effect, deposit-taking lenders.

The clearest picture of what went wrong comes from a special parliamentary committee that examined 40 prominent cooperatives, 22 already in trouble and 18 under public question, and reported to the House of Representatives in September 2024. It found liabilities of Rs 87.89bn ($567m), of which Rs 71.30bn was members' savings, and found that 13 of the cooperatives had made loans against the law, Republica reported. Online Khabar's reading of the report noted that relatives from 16 families held controlling interests in more than 300 cooperatives, and that the committee described forged memberships, meetings and reports. On paper, the 40 institutions held Rs 82bn of assets against Rs 88bn of liabilities, Online Khabar reported. The slow pace of refunds since suggests how hard those assets have been to turn into cash. One strand of the inquiry, involving loans routed to a media group, is covered in our report on the Gorkha Media cooperative collapse. The committee's findings are a parliamentary conclusion, not a court's finding of guilt in any individual case.

How big the hole is

There is no official total. Only 29 cooperatives have been formally declared troubled, a status that puts recovery in the hands of the government's Problematic Cooperative Management Committee: 23 by the federal government, five by Bagmati Province and one by Koshi Province, The Kathmandu Post reported in August.

Beyond those, estimates vary widely. Kushal KC, president of the National Campaign for the Protection of Cooperative Depositors, told The Kathmandu Post that more than 500 of the 619 cooperatives whose victims belong to his campaign were effectively in crisis. The Post also cited an estimate from the acting chairman of the cooperative federation of about 300 in serious difficulty, and one from a former expert of about 200 that had failed to repay. Nepal News, in a May 2026 explainer, counted about 60,000 depositors unable to reach their savings and described the victims as predominantly retirees, small farmers, homemakers, daily-wage workers and small traders.

Who is being paid back, and how

The refund system rests on a court order and a small fund. On 25 January 2026 the Supreme Court directed the state to return the money of depositors with savings below Rs 500,000 (about $3,200), The Kathmandu Post reported. Procedures for a revolving fund to do so were published in the Nepal Gazette in late April. The fund began with Rs 250m ($1.6m) from the budget and is to be replenished from the sale of assets belonging to directors and officials responsible for misuse, and from loans recovered from borrowers. The management committee may give priority to small depositors, single women, people over 60, Dalit and indigenous depositors and people with disabilities, the Post reported.

Payments began in May. By 29 June, 1,754 depositors of 10 federally declared cooperatives had received Rs 26.39m, The Kathmandu Post reported. In early August the Post reported that about Rs 710m ($4.6m) had been returned or settled for roughly 11,000 depositors since May, of which Rs 210m was paid in cash and Rs 500m settled through account adjustments. Nearly all verified deposits of up to Rs 10,000 had been repaid, and elderly, single and seriously ill depositors could receive up to Rs 25,000 a quarter, the Post reported.

Victims' groups say the order of payment is unfair. KC told the Post that "the process has not been just", since some depositors are repaid in full while others receive nothing. The government's position, as Radio Nepal reported it when the House of Representatives passed the new cooperative bill, is that cooperatives rather than the state should return members' savings, which makes the fund a bridge rather than a guarantee.

What the new rules change, and what to watch

The first answer was a new regulator. The National Cooperative Regulatory Authority, set up in 2025, had by May 2026 brought only about 11,000 of some 33,000 cooperatives under its oversight and was short of staff, Nepal News reported. Its powers have since been widened.

An ordinance, a decree issued by the government while parliament is not sitting, gave the authority sharper tools at the start of May 2026, Ratopati reported. Once a complaint is under investigation, the authority can freeze the property, bank accounts and shares of directors and their relatives, and it can freeze the passports of directors and staff who do not return deposits. Every savings and credit cooperative must register with the authority and renew annually. Cooperatives with share capital or annual turnover above Rs 500m ($3.2m) move under Nepal Rastra Bank's regulation. The total interest a cooperative may collect from a borrower cannot exceed the original loan, and dual membership is banned. The House of Representatives passed a bill to replace the ordinance on 2 July, Radio Nepal reported.

The issue also matters abroad. Nepal is on the grey list of the Financial Action Task Force, the global anti-money-laundering standard-setter. At a review meeting of its regional body, the Asia/Pacific Group on Money Laundering, in September, assessors named weak cooperative oversight "a primary structural risk", Clickmandu reported, despite the new authority and the secondment of ten central bank officers to cooperative supervision (see our explainer on the grey list).

For depositors with less than Rs 500,000 in a declared cooperative, the Supreme Court has ordered the state to repay them, but the timing depends on what the committee can recover. Depositors in cooperatives that have stopped paying but have not been declared troubled remain unsure of any refund, The Kathmandu Post reported. For borrowers, the interest cap limits what a cooperative can claim.

Four things are worth watching: whether more cooperatives are formally declared troubled; how much money asset sales and loan recoveries add to the revolving fund; how many large cooperatives Nepal Rastra Bank actually takes over; and whether the authority's work satisfies the grey-list assessors. On the arithmetic so far, the Rs 710m returned or settled is about 1.5% of the Rs 46bn owed by the 23 federally declared cooperatives alone.