Nepalese Cooperatives: Deviating from Cooperative Values and Principles?

Published On: April 3, 2024 08:30 AM NPT By: Dr Bishwa Mohan Acharya

Dr Bishwa Mohan Acharya

Dr. Acharya is former director of the National Cooperative Development Board (NCDB) and former Cooperatives and Poverty Expert of the Ministry of Cooperatives and Poverty Alleviation, Government of Nepal

Operators of cooperatives often put forth their complaints that the sector remains ever in the sideline of the government’s priority. While the number of cooperatives has been ballooning in size with over 30,000 cooperatives registered in Nepal, the sector struggles for its qualitative growth. One of the major problems is seen mainly with the double role played by a number of cooperatives operators—they are using cooperatives for the sake of their personal benefits while they lobby for stringent measures to be taken for the cooperatives. 

What is a cooperative?

There is still much confusion about the working style of cooperatives in Nepal. Many of the policy makers, bureaucrats, politicians, social workers and also common people think that a cooperative is a social organization and should have to be involved in social activities. But it is absolutely a wrong perception, inviting de-motivation among the genuine players. It is clear that the evolution of cooperatives was not for social activities but for business activities with an objective to protect the members from exploitation from the unfair trade and business with a blend of social justice. 

Cooperatives are often associated with a set of values and principles. They are based on the values of self-help, self-responsibility, democracy, equality, equity, and solidarity. Cooperative members believe in the ethical values of honesty, openness, holding social responsibility and caring for others. Similarly, there are seven principles of cooperatives including voluntary and open membership; democratic member control; member economic participation; autonomy and independence; education, training and information; cooperation among cooperatives; and concern for community.

Adhering to the values and principles makes a cooperative member-based organization by differentiating it from the investor-owned business. These values and principles are guidelines for cooperatives to run as a genuine organization and with active member participation with its business activities in core. Based on these values and principles, the International Cooperative Alliance (ICA) has defined a cooperative as: “A cooperative is an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly owned and democratically controlled enterprise (ICA, 1995)”. Therefore, it can be said that the basic objective of the cooperative is to make its members economically, socially and culturally capable through their involvement in cooperative business. As a cooperative is different from investor-owned firms, it carries out its business within the members with social objectives, i.e. not-for-profit. And any surplus generated from a business-related activity is again distributed to the members as patronage refund. 

Theme-based Values and Principles

Cooperatives’ values and principles are based on various suggesting the principles of voluntary membership and concern for community. Members feel they contributed more to the community through their own businesses. The concept of value focuses on trust, honesty, loyalty.

The theme of value includes participation and control. It is concerned with what the cooperatives provided to the members. It provides the balance among the ideology, values and principles, and economic value of cooperative.

The theme of people includes people, involvement, and information. The concept of people refers to the group of people working collectively that makes a cooperative member-based and vibrant. Similarly, successful cooperatives are developed by enhancing trust among the members through personal relationships. Trust can reduce transaction costs and uncertainty.

Why did this happen? 

In most of the cases, the cooperatives have been established without the need of the members. The élite, politicians and even usurers are dominating the cooperatives. It is because they are not in need of cooperative but are intent to clinch on power and supremacy in the name of cooperatives. They are most often enjoying the benefit of cooperatives due to the weakness of the members and is evident from various cooperatives vanishing with millions of savings of the members. It is mostly happening due to the use of cooperatives as investor-owned firms by some investors, mostly in the urban areas. Many of the cooperative members are not in need of having services from their own cooperatives. A definition of the United States Agriculture Department (USDA) on cooperatives in 1980 can be applied properly as “A cooperative is a member owned, member managed, member controlled and member benefitted organization”. This definition has been widely used by ILO, ICA, FAO and various organizations providing support to the cooperatives sector. But how far we have applied this definition is questionable.

A study conducted by the author on behalf of the Policy Research Institute (PRI) in 2019 found that the cooperatives in Nepal are running totally on traditional business and lack new areas of mobilizing local and natural resources like Tree Growers Cooperatives in India. Value addition and value chain in their production like AMUL India is almost absent in Nepal. They are deviating from their objectives as savings and credit cooperatives and are involved in multiple activities while agricultural cooperatives are involved exclusively in savings and credit activities. Common Property or Free Rider Problem is almost in all the cooperatives where members use the capital of the cooperative by supplying produce, but without contributing their full share of that capital. They are generally new or near-new members, who benefit from the open membership and capital management principles (ICA Principles numbers 1 and 3). The free riders receive the same price for their produce as long-standing members, while the latter may receive more in dividends paid on shares held, this form of member benefit are small or non-existent in a traditional cooperative. The ultimate consequences are that production by free riders is subsidized, leading to oversupply, and members are reluctant to provide capital, leading to a shortage of capital. 

During the study it was found that the provinces (Bagmati and Lumbini) where the study was conducted have vast areas of local and natural resources which can be utilized properly by the cooperatives through the mobilization of community and the people living there. In essence, it can be recommended for the supporting agencies and cooperatives to involve in the following possible and potential areas to make a cooperative exemplary.

Agro-forestry activities: Including plantation and utilization of trees, shrubs, palms, bamboos, canes, etc. and establishing enterprises based on these resources.

Utilization of barren land: Creating cooperative forest, permaculture with plantation of vegetables, herbs and useful trees. Such an example can be visualized in India in the name of Tree Growers Cooperatives.

Product development: Production of soap, perfumes, honey, and other products based on forest products establishing agro-forestry enterprises.

Workers Cooperatives: Establishing cooperatives including agricultural laborers, construction workers and free bonded laborers, etc. 

Aquaculture and Livestock rearing: Fisheries, goat and sheep rearing for meat by establishing processing plants.

There may be many more areas where the cooperatives must be involved and the supportive agencies must help promote these kinds of cooperatives during policy formulation, promulgating law and financing as loans or grants.

The institution established to register and regulate the cooperatives is in the forefront of the attack. It is because during the time of registration, the concerned organization does not consider any feasibility study and does not reach the site during the registration. Apart from these, the organization is not giving proper attention about how the cooperative is running. There is also lack of proper monitoring and supervision of the cooperatives by the concerned organizations.

Do Apex Organizations do proper work?

No apex organization established for the promotion and development of cooperatives are playing their role in this regard. Though there are two government organizations, viz. National Cooperative Development Board (NCDB) and Department of Cooperatives (DoCs) as well as the apex body of the cooperatives, viz. National Cooperative Federation (NCF), the Board as a policy making body of the cooperatives is unable to detect and direct to control the irregularities and wrongdoings of the cooperatives. It has also failed to formulate and implement proper cooperative programs and policies. Next one is the Department of Cooperatives which is in a very critical state and almost defunct to control, monitor and supervise the cooperatives.

The capacity of the department is very weak and the manpower being transferred within the civil service is learning by doing. The federation that is the apex body of the cooperatives is almost doing non-cooperative businesses like selling books and other items where they would earn commission, rather than to promote the products of the cooperatives. That is why the genuine cooperatives are lacking resources, linkages and marketing support from the Federation.

What should be the future actions?

Though every report on the cooperatives has clearly mentioned some strong recommendations for the promotion and development of the cooperatives, there is a total lack of commitment from the concerned agencies to implement those recommendations. To create a conducive environment for the promotion and development of the cooperatives, there must be a beginning of a reform process by the government and the cooperative sector. The reformatory actions should concentrate on structural, policy, legal and institutional reforms. For this, from the primary cooperatives to the national level cooperative organizations should be included in such a reform process.

The reform process should cover the establishment of need-based cooperatives linking poverty reduction through production, processing, storage and marketing of value addition and export-oriented goods. No person should be allowed to be a member of the cooperative unless and until s/he makes a commitment to use and provide services of and to the cooperatives. The concept of a new generation cooperative should be introduced so that all the needy members can use and provide services of and to their cooperative. There should be closed membership rather than open membership like in traditional cooperatives. 

There should not be a super tier system at the district level. No single purpose district unions should be allowed to be the member of the district union as existing. They should have their separate unions and can form their central unions as in practice. Similarly, apex level unions should not be allowed to provide the membership to the primary cooperatives. Apex level cooperatives should have to promote the business and/or product of the member cooperatives through networking with national and international organizations providing the venue for fair trade.

To make a cooperative genuine, vibrant and member based, each and every cooperative must ensure that the values and principles are anchored in the cooperative model of business. Similarly, cooperative policy and regulation should be formulated to reflect the importance of making cooperatives’ values and principles as member-owned business and differentiating it with other types of businesses focusing on innovative cooperatives rather than traditional cooperatives.

Leave A Comment