| AMID the resource crunch witnessed across the economy against the increasing public demand, cooperatives have become a new phenomenon today. Experience has proved that cooperatives are effective organisations in delivering public goods and services in an efficient and cost-effective way. Therefore, they could be proposed as a launch pad for securing economic growth in countries like ours where public delivery and production systems are still weak, and, consumers unorganised. Yet, a large number of risks have also surfaced over a period of time while attempting to activate cooperatives in this very economic process. Nepali roots The cooperative movement that has become so widespread these days has its original roots in the Guthi system institutionalised in the Kathmandu Valley society since time immemorial. In ancient times, the common goal of a group of people and families was achieved through collective access to property, returns and expenses by promoting the guthi as a ‘kinship-based social institution’. Over the centuries, the cooperative movement has modified itself to come to what we have established today as a system. It is now based on at least seven principles. Open membership, democratic control and management, and equality are the key principles. Likewise, other important principles are suitable service to its members, financial stability, promotion of cooperative education or lesson, and social responsibility. The role of cooperatives in Nepal’s financial sector should be substantial as this sector has witnessed a strong presence, particularly after the enforcement of the Cooperative Act, 1992. The law has provided for cooperatives to conduct ‘limited’ financial transactions akin to the banking services. And in a short period of time, the operation of such cooperatives has emerged throughout the nation. There are more than 20,000 cooperatives registered with the Department of Cooperatives of the Nepal Government in all the 75 districts. Out of them, more than 8,000 savings and credit cooperatives are in operation across the country. The existing financial legislation has recognised them as Class-D financial institutions. They cover more than 2.2 million Nepalese as members, while serving more than 10 million people. Additionally, a few more thousand multi-purpose cooperatives are also operating financial transactions, as per the Department’s official data. Such coverage in terms of membership and geography highlights the cooperatives’ role in the economy. The annual turnover of cooperatives is estimated at 80 billion Nepalese rupees (approx US$ 1.08 billion). Given the size of the Nepalese economy, measured in terms of GDP, the cooperatives’ turnover and its contribution to the economy are not small. Cooperatives operating in the financial sector are highly instrumental not only in mobilising scattered savings across the nation, but in also providing the people, including economically backward and underprivileged citizens, easy access to savings and credit facilities. They serve as an effective catalyst to bridging the people at the grassroots with resources in the community. The testimony to it is the rising popularity and growth of financial cooperatives in the recent years; tens of thousands of such cooperatives are now in operation in the nation. Some of the credit and savings cooperatives have command over a wide range of depositors and credit-users in different communities; their turnover even exceeds that of finance companies, i.e., Class-C financial institutions. It amplifies the present and potential role of such cooperatives in the country’s financial sector. The growth naturally brings about not only opportunities but also risks and threats. As a natural law, control and proper regulation should always get tougher, as the number and size of the organisations grow. Hence, there is an imperative need of a control mechanism on the cooperative business. Nepal Rastra Bank or similar other regulatory authority must be there to play such a role so as to avert financial aberrations and anomalies orchestrated by ill-intentioned cooperatives. In the absence of such an authority, haphazard investment practices, including those in riskier real-estate projects, are reportedly going unabated in the recent years, posing threats to the community and economy. The threats are more serious to economically vulnerable depositors associated with the cooperatives. Credibility and security are the two key factors critical in the context of savings and credit cooperatives in Nepal. Such cooperatives’ managers are required to know how much risk they can absorb in the given situation. There is an imperative need to devise a customised mechanism of credit analysis and evaluation that they need to perform before making investment decisions. The managers should build professionalism in taking ‘calculative’ risks instead of ‘speculative’ risks. A code of conduct based on the standards of social responsibility of business (SRB) - one of the principles of cooperatives - should be developed and implemented effectively under the supervision of a well-functioning regulatory authority. It is highly desirable that cooperatives’ common forums like the Nepal Federation of Savings & Credit Cooperative Unions Ltd and National Cooperative Federation of Nepal play a constructive role. Their collaboration with the regulatory authority and professional banking bodies could be instrumental in developing and implementing an effective framework for investment and deposit mobilisation. National campaign Provided that these measures are taken proactively, the country could accomplish the ongoing national campaign "Cooperatives In Every Village, Employment In Every Household" that has been launched in view of the imperative importance of cooperatives in boosting and accelerating economic growth through employment generation and fund mobilization.
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