Uttam Maharjan

Today, cooperatives are considered one of the three pillars of the national economy of Nepal, a fact recognised by the Constitution of Nepal, 2015. The contribution of the cooperative sector to the nation’s Gross Domestic Product (GDP) is three per cent. Its contribution to the financial sector stands at 20 per cent. There are around 35,000 cooperatives throughout the country with employment opportunities given to around 70,000 people. The number of cooperative members is around 6.5 million, including half the women members.

The cooperative movement in Nepal started in 1957 AD with the establishment of Bakhan Multi-purpose Cooperative Institute in Chitwan. The pace of the movement was sluggish until the 1980s when community-based cooperatives came up one after other. In order to monitor the cooperatives, an apex body, the Nepal Federation of Savings and Credit Cooperative Union (NEFSCUN), was set up in 1988. After the political change in the 1990s, cooperatives have literally mushroomed.

The first Cooperative Act was promulgated in 1960, which was replaced by another in 1992. In accordance with the Cooperative Act 1992, the government had a policy of not directly promoting cooperatives. This means cooperatives had carte blanche to run of their own accord. With the passage of time, the financial landscape has changed. More and more financial players such as commercial banks, development banks and finance companies have come on the scene. As such, to keep abreast of the changing times, another Cooperative Act was promulgated in 2018.

Common good
Cooperatives are social organisations. They are democratically managed entities. The basic principles of cooperatives are voluntary and open membership, democratic control, economic participation, autonomy and independence, education, training and information; cooperation among cooperatives, and communal concern. Cooperatives are different from private companies: the latter aim at maximising profits and pay heed to the interests of investors, whereas the former take care of the members on an equal footing. In cooperatives, all members are encouraged to take part in decision-making and policy formulation for their common good. Democratic management is one of the hallmarks of cooperatives.

Cooperatives are socially responsible entities. As they aim at benefiting all the members without bias, they aim at creating egalitarian society through the synergy of all the members. They also aim at eliminating gender bias by empowering women. Nepal is a poor country. The incidence of poverty is concentrated in rural areas. Although cooperatives are also found in urban areas also, they are needed much in rural areas. Cooperatives can contribute to the promotion of enterprises – small, medium and large. They can complement the financial sector.

By promoting enterprises, they can uplift the standard of living of rural people. It is the unvarnished truth that many rural people migrate to Kathmandu and other urban areas or abroad in search of jobs. This is all because of lack of job opportunities in rural areas. Cooperatives can help rural youth in starting business on their own, thus boosting self-employment. Now, cooperatives are under the jurisdiction of local and state governments. The sub-national governments have been authorised to enact required laws relating to cooperatives. However, owing to manpower and resource constraints, the sub-national governments have not been able to effectively monitor and regulate cooperatives.

There are a large number of cooperatives in Nepal. The government, as well as finance experts, has felt that the number is too large to manage. As a result, the government has been trying to reduce the number of cooperatives through the merger and acquisition process. However, many cooperatives have not evinced interest in going into a merger or acquisition. Kathmandu Metropolitan City has offered an exemption of municipal tax for five years for merged cooperatives in Kathmandu. Kathmandu Metropolitan wants a reduction in the number of cooperatives running in the capital city from around 1,860 to just 700. But it is easier said than done. For this to happen, attractive incentives should be in place. Or, a forced merger, even if not palatable, should be enforced.

The government is trying to bring cooperatives on a par with banks and financial institutions. Cooperatives have their own rules, which differ from those of banks and financial institutions. Cooperatives are not profit-oriented. Their main motive is community development by uplifting the economic and social status of their members. However, the rules applicable to banks and financial institutions are being gradually enforced in cooperatives also. In the past, cooperatives were free from money laundering rules. There was no provision for keeping KYC records. Now, cooperatives are required to abide by money laundering rules. They have to submit AML reports to Nepal Rastra Bank. They have to keep KYC records of their members. Their transactions have also to be monitored threshold-wise.

Curbing illegal transactions
All these provisions are designed to prevent unscrupulous people from using cooperatives as a safe haven for illegal transactions. These rules also help cooperatives in controlling financial anomalies to some extent. Money laundering has been a worldwide phenomenon. Enforcement of AML provisions in cooperatives has discouraged people from parking illegally earned money in cooperatives. Viewed thus, enforcement of AML rules in cooperatives should be taken in a positive light.

In the final anaylsis, cooperatives are indispensable for a country like Nepal, where rural poverty is rampant. Rural development is a sine qua non for overall development. Cooperatives could be a catalyst is unleashing development in rural areas. The government, including local and state governments, should pay heed to the healthy promotion of cooperatives in the country. This is the need of the hour.

(Maharjan has been regularly writing on contemporary issues for this daily since 2000. uttam.maharjan1964@gmail.com)