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Cooperatives In Nepal
Problems And Prospects

By Uttam Maharjan

FOR economic development, a country has to adopt development models best suited to its soil. So for underdeveloped agricultural countries like Nepal, the cooperative system of economic development is the right model. The cooperative movement in Nepal has been in force for over 40 years. The first cooperative society called Bakhan Singh Savings and Credit Cooperative was established in Chitwan in 1956 AD.

Flexible Stand

The cooperatives running at that time were registered under the Cooperative Act, 1959. This act was supplanted by the Cooperative Act, 1992 after the re-advent of multi-party democracy. In fact, the cooperatives could not flourish under the Panchayat dispensation. However, with the flexible stand taken by the post-1990 government on the development and promotion of cooperatives under liberal policy, the number of such cooperatives has swollen on an unprecedented scale. There are now over 5,000 cooperatives scattered across the country.

Cooperatives thrive on a spirit of collective endeavours and solidarity. As per cooperative principles, funds that are scattered among the public are brought together to form a pool, from which loans are distributed to the needy members at a concessional rate of interest. The other principles of cooperatives are voluntary and open membership; democratic control; equal participation; autonomy and freedom; training and information; cooperativeness among cooperatives; and cooperation and communal relations.

There are two kinds of cooperatives in Nepal: one permitted by Nepal Rastra Bank (NRB) and the other by the Cooperative Department. The cooperatives licensed by the Cooperative Department far exceed those licensed by NRB. Due to the dual system of licensing, the responsibility of inspecting and monitoring the performance of the cooperatives has often been passed up. As a result, the cooperatives have often transgressed their jurisdiction and carried out activities they are not authorized to. As per cooperative norms, the cooperatives should have limited transactions to their members only but in practice both members and non-members are equally involved in such transactions. Similarly, some cooperatives engage in banking transactions without obtaining permission from NRB. This shows that the cooperatives tend to carry on transactions of their own accord. Due to this ‘freedom’ , or rather indulgence, most of the cooperatives lack the right direction despite their dramatic surge since the 1990s.

It is an irony that the cooperatives have gone astray despite the well-knit hierarchy, which consists of the National Cooperative Federation at the top level followed by three central cooperative federations and 74 district cooperative federations. Besides, there are 68 district cooperative offices. Such a hierarchy should have exercised adequate control over the cooperatives.

In fact, the cooperatives have been profit-oriented rather than service-oriented. There is tough competition among the cooperatives themselves. In the thick of such competition, they have been oblivious of cooperative principles and vied with one another to secure a niche in the market. In this process, they tend to disburse loans haphazardly. The government also permits a cooperative to operate without scrutinizing its viability and the efficiency of its promoters. All this has resulted in some cooperatives being run by entrepreneurs without proper knowledge. Also, lack of inspection by the concerned authorities and failure to maintain financial discipline are responsible for the dismal performance of the cooperatives. There are several instances when promoters/entrepreneurs decamp with depositors’ funds due to inability to keep their organizations running. Such a tendency has badly eroded the public’s faith in them, even in those that are running satisfactorily.

Cooperatives are not bad in themselves. But they have ceased to target benefit at the needy people. As a matter of fact, cooperative are needed most in rural areas, where banking and finance facilities are limited. But most of the cooperatives are concentrated in urban areas. Kathmandu alone has over 600 cooperatives, whereas Manang has none.

The cooperatives have, however, contributed to the Nepalese economy by providing employment for thousands of people and by playing a role in the financial sector. But they have been disoriented and have no unit to fall back upon in case they need help.

To streamline the cooperatives, the government has proposed to set up the Cooperative Bank through bye-laws by the end of this fiscal year. (The proposed bank has been in limbo for over one and a half years. In fact, it was proposed in the 2057-58 budget.) Cooperative societies and federations are all agog now. Four hundred of them have pledged to invest 80 million rupees in the bank. The shareholders will be required to buy at least 10 shares of Rs. 1,000 each. The bank will have an authorised capital of Rs. 640 million, an issued capital of Rs. 320 million and a paid-up capital of Rs. 160 million.

Effective Tool

The bank was initially planned to be set up under the Cooperative Act but the act was not enacted in time. To shuffle out of a dilemma in operating the bank, the government also consulted with experienced foreign consultants and made up its mind to establish the bank without further delay. It may be recalled that the first Cooperative Bank was established in 2020 BS, which was merged with Agricultural Development Bank in 2024 BS due to scanty savings and poor investment track records. Let’s hope that the upcoming bank will not meet with the same fate and, rather, contribute greatly to the further development and promotion of cooperatives in Nepal. After all, cooperatives could be an effective tool for transforming the lives of the teeming poor people living in rural areas bycatalysing rural economic development.

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