In most of the developing world, cooperative societies are considered the third pillar of the national economy, along with the public and private sectors. Cooperatives in the Nepalese economy play a pivotal role, especially regarding the social and economic opportunities for the poor and rural masses. According to the Economic Survey 2022/23, by the end of March 2023, 31,373 cooperatives with more than 7,381,281 members are operating in the country. The capital share of Nepalese cooperatives is over NPR 94.15 billion. The physical number of cooperatives, their members, and the capital share themselves are enough to postulate the importance of the cooperative sector in the national economy. This is a testament to the significant role that cooperatives play in the economic development of the nation. However, the country's cooperative sector is becoming fragile daily, and people are losing their trust in these member-based democratic social entrepreneurship. In this piece of writing, we are not discussing why Nepalese cooperatives are disreputable despite massive support from the people. The article proposes some issues or measures that can help current issues that Nepalese cooperatives face so that cooperative societies in Nepal regain their trust among the people and become the technique of social transformation and tools for the economic betterment of people, mostly the poor and petty savers.
Are all cooperatives in Nepal becoming disasters?
Not all but some of them are becoming disasters for the economy. City-centered savings and credit cooperatives are losing their credibility because of different types of financial fraud and corruption committed by senior management officials, promoters, or both. Their members, especially petty savers who work in the informal economy and deposit their savings in cooperatives, suffer from cooperatives. Financial transparency and liability are fragile in most savings and credit cooperatives. This has created doubt among the members and petty depositors, which is not good for the growth and development of the cooperative sector and the members' financial prosperity. According to one report published in Republica Daily dated July 4, 2024, 54 big savings and credit cooperatives still need to return Rs 160 billion to their depositors. This data is derived only from some selective cooperatives. However, the situation might be more disastrous. "Members' economic participation" is the third universal principle of cooperatives, which advocates for economic solidarity and prosperity of the members. However, they mock this principle due to various frauds and embezzlement in cooperatives. Financial fraud and embezzlement are the biggest concern of contemporary Nepalese cooperatives. Today's concern is how to mitigate these issues and make Nepalese cooperatives more trustworthy.
How adequate are legislative provisions?
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Many governmental institutions can monitor and intervene in cooperative activities in the country. However, the Department of Cooperatives is the primary institution, and the "Cooperatives Act- 2074" and the "Cooperatives Rule-2075" are the major legislations to monitor and intervene in the cooperatives. The "Cooperatives Act-2074" provides many provisions and principles for the successful operation of cooperative societies in the nation. However, some aspects are missing or weakly implemented, contributing to financial fraud and embezzlement in the cooperatives.
Primarily, the Cooperatives Act 2074 needs to be more decisive regarding the number of cooperatives and their branches. The Act must be precise in limiting the number of cooperatives in certain administrative territories or blocks. At most, one cooperative (of the same field/nature) in one ward is appropriate. For example, only one saving and credit cooperative should exist in one ward. Next, the Act must strictly prohibit expanding branches of cooperatives. Extending the branches of the cooperative should be unlawful and unethical. Further, the yearly "Financial Audit" of cooperatives needs to be done with the direct involvement of the local government, the ward, and the local government must guarantee the savings of the depositors. This provision should be vital in managing cooperatives and achieving the goal of cooperatives. The Act concisely defines membership as "one member from one family." However, in practice, multiple members of the same family exist. This can be effectively monitored if the local government directly monitors cooperatives in their administrative blocks.
Next, the Act is unclear on "Saving and Credit" transactions. It states that the spread rate in deposit and lending should not exceed 6%. The Act also clearly states cooperatives can collect deposits 15 times the primary capital fund. However, it is silent on the cash reserve ratio. The same provision imposed for commercial banks and financial institutions by a central bank is unsuitable for cooperatives. This needs to be addressed immediately for liquidity and financial stability in cooperatives. Many depositors are complaining about the hardship of withdrawing their deposits from cooperatives.
How fair are the promoters?
Though cooperatives are members-based social entrepreneurs, it is crystal clear that some affluent people run most of the Nepalese cooperatives for their vested interests. Nepalese cooperatives are growing as tools for collecting funds for the affluent people to invest further. Undoubtedly, it is the main reason behind the embezzlement of deposits in cooperatives. This is the most terrible setback for Nepalese cooperatives. The members need to be much more aware of the promoters' interests. How do we know how fair the promoters are? It can be measured from various factors, but the most significant is how democratic your cooperative is.
How democratic is your cooperative?
"Members exercising democratic control" is one of the glorious principles of cooperatives. Therefore, becoming a member of a cooperative is more than just making deposits and borrowing loans. It is also participating in various committees in cooperatives to control them.Thus, all cooperative members must be aware and actively involved in electing the executive board, financial committee, and loan committee. Financial issues in cooperatives are evident in those whose executive body, board members, and staff members repeatedly revolve around the same handful of people.Members' active representation in various committees is crucial in maintaining accountability and transparency in cooperatives.
Conclusion
Cooperative societies are, by principle, instrumental in maintaining social solidarity and achieving economic strength through a collaborative approach. However, some cooperative societies fail to maintain financial transparency, and some fraud-minded promoters of cooperatives cause embezzlement, polluting all cooperative movements in the country. This financial embezzlement can be mitigated through some legislative reforms and mainly by the active participation of the members in controlling cooperative activities.
