Why Are Nepali Cooperatives Facing Problems?

The cooperative model had emerged with a concept of self-development through community approaches. The modern cooperative movement started in England in the mid-19th century, and its principle and idea spread worldwide. The cooperative sector is still an issue of debate for its nature. Both the capitalist and socialist economies claim and reject the notion of being their ideological instrument for social and economic development. However, the modern cooperative movement in Nepal started in 1953 after establishing the Department of Cooperatives under the then Ministry of Agriculture for Development and Planning. The cooperative movement in the country took momentum after enacting the Cooperative Act-1992 and geared up after 2007. The Interim Constitution of Nepal-2007 recognised the cooperative sector as the third pillar of the nation’s socioeconomic development. The federal constitution, promulgated in 2015, has also recognised the importance of cooperatives in socio-economic development. Undoubtedly, the cooperative sector emerged as an essential sector of a nation’s social and economic development.

Mushrooming growth

The nation has witnessed a mushrooming growth in the number of cooperatives with more memberships. According the Economic Survey-2022 released by the Ministry of Finance, the country has more than 30,879 cooperatives with 7,337,252 members. But, with the unprecedented expansion of this sector, various issues are emerging, and the financial fidelity of cooperatives is under threat. Members of cooperatives are losing their trust in their cooperatives, and financial fraud in cooperatives has become every day news. People started to doubt the importance and implication of cooperatives. Many questions revolve around the people about the cooperatives. Are Nepali cooperatives tools for social transformation and priceless economic development techniques or an instrument for the financial fraud of the wealthy? Why are such financial issues and frauds rampant in the cooperatives? Are cooperatives safer for members' savings? These and many similar questions are in the minds of the public and cooperative members.  

Urban-centred cooperatives have mostly derailed from the main ideas of social transformation and economic development through coordinated efforts. Today's urban and city-centred savings and credit cooperatives act much as a junior brother of banks and financial institutions. Most of them are owned by a handful of wealthy, and they use the deposit for their vested interest. As a result, members of cooperatives have failed to get their savings back in their time of need, or they have lost all their savings due to financial fraud in those cooperatives. Today, this news is hitting the headlines. As a result, cooperatives are losing their faith in the members. The poor legislation and fragile monitoring of financial cooperatives is the main loophole for such deception. To guarantee the members’ savings and restore the trust of their members in cooperatives, four steps should be taken immediately by the concerned authority. 

First, cooperatives should maintain at least 25 per cent liquidity. It is essential to keep the trust of their members. They have the right to withdraw their savings at the time they demand. Second, there should be fixed spread rates to maintain financial transparency and stability in cooperatives. In most cooperatives, the interest rates in deposit and lending are fragile, person-specific, and determined by word of mouth. The spread rates should be at most 3 per cent. Since cooperatives are member-based institutions and work for the economic development of members, high spread rates are against their principle. Third, there should be a ceiling on the investment. Cooperatives are unique to banks and financial institutions. Therefore, their investment priority should be special. For example, the investment of cooperatives in real estate and luxury vehicles must be prohibited. 

Cooperatives should prioritise their investment in small investments and businesses, and in some cases, they should be based on the members’ project. Fourth, saving and credit cooperatives need to be capable of monitoring and vetting. Many cooperatives with financial issues today are mostly run by single person/family or proxy members. So, all cooperatives run by single-family, family members, or proxy members should be identified, and immediate action should be taken to bring them under community ownership. They should be managed by enforcing mandatory mergers with other cooperatives. 

Rural cooperatives have unique roles and activities and are viewed as a powerful social development model and effective economic progress technique for rural development. Such cooperatives are doing better in comparison to urban ones. Their roles in agriculture and allied sectors and small entrepreneurship seem good. However, these rural cooperatives need to focus on agriculture marketing. They should be developed as a hub for agriculture input supplies and agriculture output marketing. Rural cooperatives must be more specific in agricultural diversification and promoting small and cottage industries. 

 Further research

Rural cooperatives are instrumental in building sustainable rural communities as well. Enhancing social inclusion, raising political awareness, and increasing economic activities are the bases for sustainable rural communities. How effective rural cooperatives are in building rural communities needs further research. Also, the approaches of the poor, deprived, and disadvantaged sections to rural cooperatives still need further debate. However, rural cooperatives are ideal local initiatives to share the communal risks and benefits. 

The cooperative sector undoubtedly is the third pillar of a nation’s development, along with the public and private sectors. There are some issues with urban-centred saving and credit cooperatives. They need to be monitored effectively by the concerned authorities and departments. Immediate financial provisions and legislation are required to maintain the trust of their members. Rural cooperatives are pivotal for rural development, which is either far from the sight of the government or neglected by the private sector because of less profitability. The relevant authorities need to take solid steps to resolve the issues with cooperatives in order to strengthen the cooperative movement in the country. 

(A cooperative expert, the author is a faculty of Sociology at Minnesota North College. abinojha@gmail.com)