Seven Decades of Cooperative Movement in Nepal

RA Ramchandra Gautam

The author is member of ICAN. He can be reached at: ramchandragautam672@gmail.com

 

Abstract

The cooperative movement in Nepal began in 2013 B.S. and evolved from traditional community-based support systems into a major pillar of the national economy. Legal reforms, particularly the Cooperative Act 2048 B.S. and the Constitution of Nepal 2072, significantly strengthened the sector and expanded its role in financial inclusion and economic development. Despite its growth, the sector currently faces challenges related to governance, liquidity, and public trust. Sustainable reforms, transparency, and effective regulation are essential for the long-term success of Nepal's cooperative movement.

 

Introduction

The cooperative movement in Nepal has deep roots in traditional community-based practices such as parma, guthi, and dhukuti, which embodied collective support and mutual aid long before formal institutions emerged. The modern cooperative movement formally began in 2013 B.S. with the establishment of the Bakhan Credit Cooperative in Chitwan, initially aimed at disaster rehabilitation. Over time, legal frameworks, including the Cooperative Act 2016 B.S. and especially the landmark Cooperative Act 2048 B.S., transformed cooperatives into self-reliant, autonomous institutions and accelerated their expansion across sectors like agriculture, savings and credit, and dairy.

 

Between 2051 B.S. and 2071 B.S., cooperatives gained institutional strength, international recognition, and constitutional status as one of the three pillars of Nepal’s economy alongside the public and private sectors, reinforced by the Constitution of Nepal 2072. This period also saw rapid quantitative growth, with thousands of cooperatives and millions of members contributing to financial inclusion and economic development.

 

However, after 2078 B.S., the cooperative sector faced a severe crisis marked by liquidity shortages, weak governance, mismanagement and declining public trust, particularly in urban cooperatives. Despite reforms such as the Cooperative Act 2074 and recent regulatory measures, challenges persist in ensuring accountability and protecting savers. The study concludes that while cooperatives remain a vital democratic and economic tool for mobilizing small capital and promoting inclusive growth, their sustainability depends on strong regulation, transparency, member-focused operations, and effective institutional reforms to restore public confidence and ensure long-term stability.

 

Origination of Cooperatives

Before discussing the cooperative movement in Nepal, we must first talk about the traditional, informal groups and practices that existed long before any formal cooperative system, such as parma, guthi, dharmabhakari, dhukuti, paicho, houli, etc. Without mentioning them, the story of Nepal’s cooperative movement remains incomplete. Here I will briefly discuss those aspects.

 

Before cooperatives were run formally, many social groups and traditions existed that embodied the spirit and essence of cooperation. Their main objective was to help the poor and vulnerable people economically and socially, and to create an environment where everyone could live with dignity in society. The tradition of the whole community coming together to complete any work, from weddings, bratabandha, death, to planting, harvesting, building houses/sheds, has been our own unique and special tradition. We have been doing these things collectively, and it still exists today in remote villages and very difficult areas.

 

A cooperative is a self-reliant institution that runs on the principle of “all for one and one for all.” In a country like Nepal, with geographical challenges and low income, the role of cooperatives is indispensable to pool small, scattered capital and invest it in productive sectors.

 

Cooperatives, that began in Chitwan in 2013 B.S., has become a major pillar of Nepal’s economy today. But at the same time, the sector is now trapped in a huge crisis of trust and problems. Like in other countries, Nepal’s cooperative movement formally began through government effort for disaster management.

 

In the context of rehabilitating people displaced by the floods in Gorkha in 2011 B.S., on Chaitra 20, 2013 B.S., the “Bakhan Rin Cooperative Society” was established in Bakhanpur (now Sharadanagar), Chitwan. This institution, established to provide loans and relief to flood victims, was Nepal’s first cooperative. Therefore, this day is celebrated by cooperative unions and cooperators as “Cooperative Day.”

 

At that time, there was no legal basis to formally register cooperative societies. However, in 2013 B.S., the then government issued a working order for systematic formation, registration, and operation of cooperatives, marking the auspicious start of opening cooperatives. In the same year, under the Raptti Development Project run with the support of the United States of America, 13 loan cooperatives were formed in Raptti Doon of Chitwan district, but except for Bakhan Cooperative, all others could not run and eventually closed. To manage the cooperative societies, a Cooperative Department was established in 2010 B.S. under the Ministry of Planning and Agriculture. Under that Cooperative Department, staff were kept under the administrative control of the Village Development Zone and cooperative-related work was advanced.

 

2016 B.S. to 2020 B.S.

 

• First Cooperative Act: Before 2016 B.S., cooperatives could be registered and operated through the working order. To operate them in a systematic way, a separate Cooperative Act was needed. In that context, the first elected government issued the first Cooperative Society Act, 2016.
• Cooperative Regulations: After the issuance of Cooperative Act, 2016, regulations were needed to make some of its provisions more systematic and clearer, but due to political changes in the country, regulations could not be made in time. After some delay, the Cooperative Society Regulations, 2018 were issued in 2018 B.S.
• Establishment of Cooperative Development Fund: In 2018 B.S., the Cooperative Development Fund was established to solve problems faced by cooperatives. Its main tasks were to provide seed capital to cooperatives, give loans at concessional interest, conduct training/workshops, assist in bookkeeping, open model agricultural cooperatives in districts to teach others, prepare cooperative-related promotional materials, and distribute them to village level. In short, Cooperative Development Fund was formed to do everything for the development of cooperatives.
• Establishment of Cooperative Training Center: With the objective of increasing knowledge about cooperatives in the country, Cooperative Training Center was established in 2021 B.S. Its main job was to train people involved in cooperatives and produce skilled human resources. This training center, with its own facility, is still operating today in New Baneshwor, Kathmandu under the name ‘Cooperative Training and Research Center’.
• Cooperative Bank Act issued: Keeping the cooperative sector in high priority, the government issued the Cooperative Bank Act, 2019 in 2019 B.S. to run a separate bank with the objective of meeting financial needs of cooperative sector. In the same year, the Cooperative Purchase, Sale and Loan Union was established to provide necessary loans to cooperatives and to buy/sell produced goods.
• Establishment of First Cooperative Bank – After the Cooperative Bank Act was issued, and after completing certain processes and internal management, the Cooperative Bank was formally established in 2020 B.S. to provide necessary loans to cooperative societies.

 

2021 B.S. to 2040 B.S.

 

After land reform was implemented in the country, many changes were made in the cooperative movement as well. In 2021 B.S., Agricultural Reorganization Program and Supervised Credit System was started. In the same year, staff working under the Cooperative Department were involved in the land reform program. In 2023 B.S., the Cooperative Department was included under the Ministry of Land Reform, Agriculture and Food. In 2024 B.S. a central-level review committee on cooperatives was formed. In the same year, National Campaign of Back to Village was started which put great emphasis on the Sajha (cooperative) system. In 2024 B.S. the Cooperative Bank which was established for cooperatives was converted into the Agricultural Development Bank. In 2025 B.S. all administrative and development-related work of cooperatives done by the Cooperative Department was transferred to the Land Reform Department. In 2026 B.S., the Cooperative Department was transferred from Ministry of Planning and Agriculture to Ministry of Land Reform. In the same year, while running the Integrated Agricultural Development Program, compulsory savings were first converted into shares of cooperative societies in Bhaktapur district. The Cooperative Purchase, Sale and Loan Union was converted into the District Sajha Union.

 

The work of coordination and promotion of Sajha institutions was again transferred from the Land Reform Department to the Cooperative Department in the year 2026 B.S. For qualitative growth of cooperative societies, the specified cooperative program was implemented. In 2027 B.S. the first Cooperative Society Act, 2016 was amended. The Cooperative Prosperity Program was implemented, and a Central Cooperative Prosperity Committee at the center and District Cooperative Prosperity Committees in districts were arranged, and the management of cooperative societies handled by the Cooperative Department was handed over to the Agricultural Development Bank. In 2028 B.S. some amendments were made to the first Cooperative Society Rules, 2018. From 2029 B.S.the Sajha education program began to be run regularly. In 2033 B.S. the Sajha program was implemented nationwide. Emphasizing the spread of Sajha, the service was provided through “door to door” campaign and the number of cooperative societies was increased. One or two panchayats were made in the working area to form a Cooperative society. Pradhan panch was made chairperson by provision, a Central Sajha Development Committee was arranged at the center.

 

The Cooperative Society Rules, 2018 were amended for the second time in 2033 B.S. Compulsory savings raised after land reform was implemented were converted into shares of cooperative societies. Population education was started through cooperative societies, and population education was given through cooperative societies across the country. To bring uniformity in cooperative societies and operate them systematically, the cooperative societies Administration and Financial Rules were arranged in 2034 B.S. which brought uniformity in all cooperative societies and transparency and clarity in the working style. In 2035 B.S., the responsibility of managing cooperative societies given to the Agricultural Development Bank was withdrawn and handed over to the board of directors of the concerned institutions. Since then, the management of cooperative societies became the responsibility of the board of directors concerned. Auditing and monitoring work continued from the Cooperative Department.

The cooperative societies Administration and Financial Rules, 2034 were scrapped and the Sajha Institution Administration and Financial Rules, 2035 were implemented. Realizing that only quantitative growth of cooperative societies had happened, for qualitative growth the policy of merging cooperative societies with each other was adopted. Realizing that without developing small farmers the country cannot have an agricultural revolution, the government in 2037 B.S. started identifying farmers with less than one hectare of land and annual income less than Rs. 5,000.00 and forming and operating Small Farmer cooperative societies. This was initially run as a pilot project in only 5 districts including Morang, but within the period of 5-6 years the project failed. In the same year, the cooperative societies Administration and Financial Rules, 2035 created to operate cooperative societies were fully scrapped and the cooperative societies Administration and Financial Rules, 2037 were implemented. A task force was formed to study Sajha comprehensively.

 

2041 B.S. to 2050 B.S.

 

To make the Sajha development movement more effective and prosperous, the old Sajha Society Act, 2016 had to be changed. Therefore, keeping with the demand of time, the then government fully scrapped the Sajha Society Act, 2016 in 2041 B.S. and issued the Sajha Society Act, 2041. After Sajha Society Act, 2041 came into effect, in 2042 B.S. the names of the Cooperative Department and district offices were changed. The Cooperative Department’s name was changed to Sajha Development Department, Cooperative Training Center was changed to Sajha Development Training Center, Regional Cooperative Office was changed to Regional Sajha Development Office and Cooperative Branch was changed to Sajha Development Branch. Along with the development of cooperatives, the first national Sajha conference was held in Kathmandu in 2043 B.S., which made important decisions that had long-term impact on the cooperative movement. Those decisions later became the guiding path for operating cooperatives. Another important achievement this year was the issuance of the Sajha Society Rules, 2043. The state was trying to make the cooperative sector systematic, disciplined and responsible. All the above-mentioned efforts, reforms and changes were for this purpose. However, the cooperative movement could not take much pace. But the state was trying. In this sequence, a 17-member high-level Central Coordination Committee was formed in 2044 B.S. to make the Sajha movement prosperous and effective, and the Cooperative Department under the Ministry of Land Reform was transferred under the Ministry of Agriculture.

 

When compulsory savings raised during land reform came to 2045 B.S., the government decided to return it to the concerned savers, but such savings had already been transferred to cooperative societies share capital in some places. To make the cooperative movement successful, believing cooperative education to be the main way, in 2046 B.S. mobile training teams were established in Banke, Tanahun, Dolakha, Chitwan and Ilam. After its successful testing, in 2047 B.S. the same type of mobile teams were established in Kailali, Rupandehi and Morang. Even though programs were run as per above, expected achievement in the field of cooperative development and promotion could not be obtained. All programs seemed like experiments. To strengthen the movement, in the same year a 7-member National Cooperative Federation Preparation Committee was formed, and a National Cooperative Development Conference was organized in Kathmandu. Similarly, in 2048 B.S., to bring extensive reform in this sector to determine the legal basis of the cooperative movement, the form of organization, structure, its operation system and to set up organizations from center to district level and prepare necessary rules, regulations and other preconditions, an 11-member National Cooperative Development Board was formed. The country was amid political change. Different sectors were agitating with different demands. Cooperatives also could not remain untouched by this effect.

 

In 2049 B.S., with extensive reforms, the Sajha Society Act, 2041 was scrapped and the Cooperative Act, 2048 was implemented. It is believed that this Act was a “turning point” in Nepal’s cooperative history. It recognized cooperative societies as self-reliant and independent institutions. State control was removed and the concept of self-regulation began. Cooperative societies became self-reliant. They were freed from government control. The management of cooperative societies came under the responsibility of the concerned cooperative societies board of directors. By the end of Paush 2049 B.S., interim boards of directors were formed in District Cooperative Offices and Cooperative Unions. The name of Sajha cooperative societies was changed to Cooperative Society, Sajha Development Branch to District Cooperative Office, Regional Sajha Development Office to Regional Cooperative Office, Sajha Development Training Center to Cooperative Training Center, and Sajha Development Department to Cooperative Department. On promulgation of the Cooperative Act, 2048, the work of opening especially savings and loan cooperative societies increased rapidly. Savings and loan cooperative societies began to open in every village, women got organized and moved towards economic empowerment through women’s cooperatives. Dairy, agriculture, and multipurpose cooperatives made the economy dynamic. 2050 B.S. became an important year for the cooperative movement. Especially this year, the following 7 initiatives were taken by the government:

 

1. Cooperative Society Rules, 2049 issued,
2. Nationwide election of cooperative unions,
3. Formation of National Cooperative Federation at the center,
4. Formation of Central Consumers Union,
5. Formation of Nepal Savings and Loan Cooperative Union,
6. Formation of Central Dairy Producers Cooperative Union, and
7. Formation of single-purpose (savings and loan, consumers, women only) cooperative societies in large numbers in districts.

 

2051 B.S. to 2071 B.S.

 

The Cooperative Act 2048 made in the wake of the People’s Movement 2046 was the most liberal cooperative act in South Asia. To say truly, this Act had embraced many of the values, principles, and international cooperative principles of cooperatives. Because of that, Nepal succeeded in making the National Cooperative Federation a member of the International Cooperative Alliance (ICA) in 2054 B.S. In 2057 B.S., the first amendment to the Cooperative Act, 2048 was made, removing the provision to collect savings from non-members and keeping provision to establish a cooperative bank. For the first time, a separate Ministry of Cooperatives was arranged to oversee cooperative movement, named Ministry of Agriculture and Cooperatives. Similarly, in 2058 B.S., the 6th Conference of Ministers of Cooperatives of Asia and Pacific Region was held in Kathmandu, and in the same year the first National Cooperative Conference was organized in Kathmandu for the establishment of a National Cooperative Bank, and based on the policies set by that conference, the second National Cooperative Bank was established in 2060 B.S. In the Interim Constitution of Nepal, 2063, public, private and cooperative were embraced as the three pillars of the economy, after which cooperatives got constitutional status. To operate cooperative societies systematically, the Cooperative Department compiled all matters and implemented the Cooperative Standards, 2068. Similarly, in 2069 B.S., the Ministry of Cooperatives and Poverty Alleviation was established and the National Cooperative Policy, 2069 was issued. In 2070 B.S., a National Cooperative Grand Assembly of former cooperative workers from across the country was held in Kathmandu.

 

2072 B.S. to 2082 B.S.

 

• Constitutional Recognition: The Constitution of Nepal, 2072 recognized cooperatives as one of the three pillars of the economy - public, private and cooperative – thereby making cooperatives an integral part of the state’s economic development and cooperatives got constitutional status.
• Quantitative Growth: During this period, cooperative societies increased excessively, reaching more than 34 thousand in number. More than 60 lakh people got involved in it.
• Cooperative Act, 2074: With the change in state’s governance system, the registration, regulation, and monitoring of cooperative societies also had to be run from three levels, and keeping that situation in mind, the Cooperative Act, 2048 was scrapped and the Cooperative Act, 2074 was issued. Now the registration, regulation, training and monitoring of cooperatives with only one municipality as working area is done by the concerned municipality; those with two or more municipalities as working area within a province are done by the concerned province; and those with working area in more than one province are done by the Cooperative Department.

 

Recent Challenges of Cooperative Sector

After COVID-19 pandemic hit worldwide; this sector also could not remain untouched. Cooperative societies began to face widespread liquidity shortages. Liquidity problems were seen less in rural-based community-based cooperatives, but cooperatives operating in urban areas drowned in liquidity shortage. Loan recovery declined, the institutions’ capacity to return savings began to decrease. The problem of not returning savings became severe. Savers got organized and were forced to take to the streets. The movement took the form of a national problem. Between the state and agitators, agreements were made several times, but the problem could not be solved. The issue entered from the street to the parliament. Parliament even formed a parliamentary probe committee for long-term solution, but no solution could be found. Based on the report given by the parliamentary committee, in 2081 B.S., government amended the Cooperative Act, 2074 through ordinance and introduced reform programs such as National Cooperative Regulatory Authority, Credit Information Center, Savings Protection Fund concept, digital data system through copoInmis, setting savings limits, mandatory source disclosure for savings above 10 lakh, strict compliance with property laundering provisions, limiting share dividends to 15%, merger, etc.

 

Way Forward

To deal with the challenges as mentioned above and restore the confidence of people towards cooperatives, following initiatives need to be considered by the concerned authorities::

• Cooperatives should not be commercial businesses but should be developed as service-oriented institutions.
• The National Cooperative Regulatory Authority should be expanded at least to province level and developed as a strong body like Nepal Rastra Bank.
• Focus should be given to member-centered business.
• Money collected from members should be invested in productive sectors while managing liquidity.
• Cooperative awareness and education should be run as a movement.
• Special attractive packages should be brought for mergers.
• Umbrella organizations should be separated from savings/loan business and only engaged in promotional work.
• For once, the state should manage the cooperatives in problem and hand over to the National Cooperative Regulatory Authority, ensuring the return of savers’ money.
• Savings Protection Fund should be established and return of savers’ money should be started immediately.

 

Conclusion

In Nepal, the cooperative movement started in 2013 B.S. for disaster management, social service, agricultural development and poverty alleviation. After the Cooperative Act, 2048, the movement took a turn. It made itself professional. After 2072 B.S. it became constitutional, but after 2078 B.S. it became a victim of mismanagement. Cooperatives themselves are not bad institutions; they are an excellent democratic model to pool “small” capital and invest in production. Many cooperatives have achieved exemplary success across the world. In this context, we can see AMUL India and Milk Vita Bangladesh are exemplary cooperatives in South Asia.

However, in Nepal, the work against the spirit of cooperatives done by some fraudsters and people with political access created complications in this sector. Even now, if the state cannot regulate strictly and act against culprits and return savers’ money, Nepal’s financial stability could be ruined. Nepal’s cooperative movement is now passing through a dark cloud, but with right policy and honest leadership, it can get revival – there is no two opinions on this.

 

References

• Cooperative Act.2016,2041,2048 and 2074 B.S.
• Souvenir and Statistical Reports 0f Department of Cooperative
• Economic survey of the Ministry of Finance for Various Years
• History of Cooperative Moment in Nepal Published by National Cooperative Federation of Nepal.
• Report 0f the Parliamentary Probe Committee on Cooperative Fund Misuse 2081 B.S.
• Constitution of Nepal 2072 B.S.
• Cooperative Bank Act, 2019 B.S.
• Annual Reports of the Cooperative Department for Various Years.
• Cooperatives and their development in Nepal, Published by Cooperative Training Centre, Kathmandu.
• Nepalma Sajha Karyakram, Rastriya Sahakari Maha Sang Paramarsa Samitidwara parstut Partibedan 2047