Credibility Quest

April 6, 2014, 5:45 p.m. Published in Magazine Issue: Vol: 07 No. -19 Apr. 04- 2014 (Chaitra 21, 2070)

Meet Bina Tamang. Her husband has been working in Qatar for 30 years. Bina deposits the hard-earned money he sends in remittances with a cooperative. Bina’s husband says all his savings from his labor at Qatar are with the financial institution. They fear their money might be at stake now.

At the first Nepal cooperative meet, a number of similar stories were shared and many were offered as opportunities to secure money through cooperatives and returns on it.

There are around 29,000 cooperatives in Nepal. Their financial contribution to the nation is 18 percent.

Nepal’s economy would have been on a course of rapid growth if the cooperatives had the needed transparency and accountability. This is where the government has failed to address a number of problems of the cooperatives sector.

As a matter of fact, over 21,000 complaints have been registered by 12,000 people against 157 cooperatives. In a country where billions of rupees could prove to be substantial for growth, the citizens have incurred over Rs. 7 billion in losses.

Among the many reasons for the rising problems with the cooperatives, the initial concept of cooperatives is a glaring one. A cooperative is supposed to be a group of people in a small number who come together for dividing economic burdens. Now cooperatives are synonymous to private businesses, polluting the domain and creating room for illegal financial benefits. The new understanding has been working to such an extent that the capital (Rs. 300 billion)  held by some of these cooperatives has exceeded that of commercial banks.

Several studies have thrown light on the inadequacy of skilled manpower to regulate the cooperatives behind the mushrooming growth. Human resources, with rigorous orientation on investments and application of monetary funds, are scarce today due to which unsound investments in risk prone areas have proliferated.  As a result, laymen with a general and minimal understanding of cooperative principles are surprisingly the head of numerous cooperatives.

Inept policies are a major reason for cooperative mismanagement in Nepal. The policies and legal regime in place have encouraged spontaneous initiatives of communities in relation with the cooperatives. Scarce legal provisions have caused malpractices to multiply putting the investment of clients to risk. The cooperative sector has been trailing behind in terms of policy prioritization as it has been given a minimal importance.

Even after the introduction of the Cooperative Act, there is no proper body guiding or tracking the movement of cooperatives. The cooperatives are not allowed to transact with non-members even as a significant number of members have indulged with financial transactions with non-members. This is so because of poor inspection from cooperatives in adding members for expanding their coverage despite no role of these additional members in their functioning. 

In addressing the problems, the first and foremost step is to make management audit mandatory. As the number of cooperatives has increased, it will be a burden for the government alone to monitor the sector. Instead, the government can appoint private bodies to examine the sector. Control and proper regulation as per natural laws should be made tougher with the increasing number of these organizations.

Moreover, the cooperative sector has very little to offer and its investment is restricted to investment in the real estates and construction projects. In spite of the visibility of good cooperatives in the rural sector, it has been noted that the financial services they are providing have been insufficient in catering to the needs of all the members. These firms should seek to diversify their portfolios in which case market research could prove beneficial.

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 customized 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.

If altered on an immediate basis, cooperative norms would generate both long-run economic and social prosperity for the people. The laws, acts and regulations of the state should be revised with time and by involving the cooperative operators with proper training in the field. Thus filling these gaps would definitely lead Nepal to a commendable economic growth.  

Women’s cooperatives are also contributing towards empowerment of women and prosperity. This shows that cooperatives can become a medium of development of Nepali economy if mobilized properly. The laws, acts and regulations of the state should be amended according to time and the cooperative operators themselves should be trained to modify their working practices.

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