Cooperatives are a powerful business model that empowers individuals and communities by distributing ownership among all members rather than concentrating it within a specific group. Even though cooperatives may look like any other business from the outside, they are built and run entirely differently from the inside. Unlike traditional businesses, cooperatives are unique because they are owned and operated by the people closest to the business—employees, residents, customers, and suppliers—rather than distant shareholders. 

A cooperative is an association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly owned and democratically controlled business. Cooperatives operate for the mutual benefit of their members, working together to achieve goals that individuals could not achieve alone. For example, Barcelona Football Club is a cooperative owned by its fans.

Historical Background

The first recorded cooperative was formed in Fenwick, Scotland, in 1761 where Local weavers sold oatmeal at a discount it eventually formed Fenwick Weavers' Society. Modern cooperatives began with the Rochdale Pioneers in England in 1844 where 28 artisans from Rochdale, England, established the first modern cooperative business Named Rochdale Equitable Pioneers Society, or Rochdale Pioneers. Subsequently, the UK enacted cooperative law in 1852. Gradually another independent co-operative model was adopted in Germany through Raiffeisen and Schultz-Delitsch which later on formed credit unions in 1862. This model spread globally, inspiring financial cooperatives like credit unions.

Differences Between Cooperatives and Banks

In Nepal, Cooperatives are governed under the Cooperatives Act 2074 and Cooperatives Rules 2075 while Banks are regulated by the Banking and Financial Institutions Act 2073. Apart from this, general differences are:

Types of Cooperatives

• Education Cooperatives: Mondragon University in Spain operates as a cooperative and has over 5,000 students.
• Retail Cooperatives: Migros in Switzerland is the largest retail company, supermarket chain, and employer, operating as a cooperative.
• Multipurpose Dairy Cooperatives: Amul Milk in India is a famous example.
• Agricultural Cooperatives: Indian Farmers Fertiliser Cooperative Limited (IFFCO) has grown to include over 36,000 cooperatives and diversified into various sectors.
• Consumer Cooperatives: The National Electric Cooperative Association in the USA serves over 42 million customers.
• Health Cooperatives: Italian social cooperatives provide services to millions and employ over 230,000 people.

In addition to the above, other types include tourism cooperatives, radio and media cooperatives, transport cooperatives, telecommunication cooperatives, and fishing cooperatives.

Key Features of Cooperatives

All cooperatives across the world share the same values and principles, which are:

• Democratic Control: Members control the cooperative.
• Economic Participation: Members contribute equitably to and democratically control the capital.
• Autonomy and Independence: Cooperatives are autonomous organizations controlled by their members.
• Education and Training: They provide education and training for their members.
• Cooperation Among Cooperatives: Cooperatives work together through local, national, and international structures.
• Concern for Community: They work for the sustainable development of their communities.

 Cooperatives in Nepal

In Nepal, the cooperative movement began with the establishment of the Cooperative Department in 1953. The department currently serves as an implementation wing of the Ministry of Land Management, Cooperatives, and Poverty Alleviation. The first cooperative in Nepal, Bakhan Multipurpose Cooperative, was established in 1956 (2013 BS). The Cooperative Organization Act of 2016 BS was the first legislation to regulate cooperatives. Subsequent legislative developments included the Cooperative Organization Rules of 2018 BS, but these did not significantly advance the cooperative sector at the time.

The People's Movement of 2046 BS brought about major changes with the introduction of the Cooperative Act of 2048 BS and the Cooperative Rules of 2048. This led to a proliferation of cooperatives throughout the country, which began to make substantial contributions to the economy. Cooperatives were recognized as a third pillar in the government’s economic policy. Following the promulgation of the Constitution of Nepal 2072 BS, the Cooperative Act of 2074 BS and the Cooperative Rules of 2075 BS were introduced, enhancing operational diversity by defining the roles of cooperatives across three levels of government. At present, Articles 50(3) and 51(d)(1) of the Constitution of Nepal shed light on the importance of the cooperative sector while many perceive it as the third pillar of the Nepal economy.

The regulatory framework for cooperatives operates at multiple levels. On a federal level, they are overseen by the Ministry of Land Management, Cooperatives, and Poverty Alleviation, along with the Department of Cooperatives. Provincially, respective ministries and cooperative departments manage and regulate these institutions, while locally, they fall under the jurisdiction of metropolitan, sub-metropolitan municipalities, and rural municipalities. Preferably, local governments are given the responsibility of regulating and monitoring cooperatives within their jurisdictions under the act. Cooperatives operating across multiple local areas fall under provincial jurisdiction, while those functioning across multiple provinces are overseen by the federal government. Despite this structured framework, cooperatives have not received full prioritization from all levels of government. Some cooperatives faced challenges due to members with malicious intent who illegally utilised deposits made by the people and subsequently disappeared into thin air. Provincial and local governments have struggled to implement policies, structures, and manpower in a timely manner, resulting in inadequate oversight of some cooperatives. Additionally, misconceptions about immediate membership without fulfilling minimum criteria and participation in cooperative activities have contributed to internal issues.

According to the Cooperative Reform Task Force Report of 2023, today, there are 31,373 cooperatives in Nepal. These cooperatives have extended loans amounting to NPR 4 Kharba 26 Arba 35 Crores and have created 93,771 direct jobs, along with millions of indirect employment opportunities. The share capital of these cooperatives stands at NPR 94 Arba 15 Crores, with savings mobilization at NPR 4 Kharba 3 Crores. Given these figures, cooperatives manage approximately 21.5% of the total budget for Nepal's fiscal year 2081/82 BS, which is NPR 18 Kharba 60 Arba 30 Crores. This underscores the significant role of cooperatives in Nepal's economy, contributing notably to both the budget and employment sectors. The movement is seen as a force for promoting non-exploitative economic relations.  

Recognizing the importance of robust oversight, the government has announced plans to establish a dedicated regulatory body for cooperatives. This initiative, part of the monetary policy for FY 2023/24, aims to ensure that cooperatives operate effectively and transparently.

Responsibilities of members in a cooperative include:

Upon becoming a shared member of a cooperative organization or union, it is crucial to evaluate the following aspects to ensure transparency, equality, and compliance:

1. Verify if the organization holds its general meetings as scheduled. Regular and timely meetings are essential for maintaining transparency and accountability within the cooperative.
2. Assess whether all members are treated equally. This includes equal access to services, voting rights, and participation in decision-making processes.
3. Investigate the areas where loan investments have been made. It is important to understand the sectors and projects the cooperative supports with its financial resources.
4. Determine the interest rate charged on loan investments. Compare this rate with the reference interest rate set by the regulatory body to ensure it is within acceptable limits.
5. Check if the interest rates charged to members and directors are consistent. Any discrepancies could indicate preferential treatment or lack of fairness within the cooperative.
6. Examine whether interest from loan investments that are not paid within the stipulated time is added to the principal amount (capitalized). This practice can significantly affect the financial burden on members.
7. Confirm if the cooperative is affiliated with the Cooperatives and Poverty Management Information System (COPOMIS) implemented by the regulatory department. Affiliation with COPOMIS indicates compliance with regulatory standards and effective management of cooperative activities.

Conclusion

Cooperatives are a powerful business model that empowers individuals and communities. By focusing on democratic control and mutual benefit, they provide a sustainable alternative to traditional business structures, contributing to economic, social, and cultural development. Nepal’s well-known cooperative models include Sajha Yatayat, which was established in 1962, is a cooperative company that offers efficient and affordable public transportation in Kathmandu Valley and beyond. Despite ongoing challenges and criticisms within the cooperative sector, the core principle of community service remains strong. This underscores the need for rigorous monitoring of cooperative organizations, particularly those functioning as cooperative banks.