With the advent of democracy in Nepal in 2007, special importance was given to cooperatives. The Interim Government Act of 2007 made provision for the promotion of cottage industries on an individual or cooperative basis in rural areas. The Department of Cooperatives was established in 2010 as one of the oldest departments of the Government of Nepal to regulate cooperatives.

In the context of modern lawmaking, the Cooperative Committee Bill was presented to the Advisory Assembly in 2011. In 2012, the Nepal Rastra Bank Act made provision for providing loans to agricultural cooperatives on reasonable terms. Similarly, the first five-year plan launched in 2013 included policies and programs for the development of the cooperative sector.

In 2013, an executive order was issued on cooperatives, under which Nepal's first cooperative 'Bakhanpur Cooperative Loan Committee' and other cooperatives were established. After the Cooperatives Act came into force in 2016, it was provided that cooperatives registered under the executive order were considered to be registered under the same act. Subsequently, under the Cooperative Acts enacted in 2041, 2048 and 2074 and the regulations issued under those acts, many cooperatives were established, the current number of which is about 33,000.

Nepal's first elected Prime Minister Bishweshwor Prasad Koirala, after a visit to Israel, had emphasized that Nepal should also adopt the cooperative model, gaining experience in the success of cooperatives there. In 2018, the Central Cooperative Society Limited was established under the chairmanship of Bishwabandhu Thapa under the patronage of King Mahendra. A comprehensive cooperative program was launched since 2033.

A policy of self-regulation was adopted in cooperatives since 2048. Slogans such as 'Cooperatives in every village, employment in every house' and 'Cooperatives in every village, food in every house' were put forward in 2061/62 and 'Cooperatives in every village, food in every house' in 2064/65. Since 2063, the constitution has recognized cooperatives as the third pillar of the economy.

More than a dozen commissions, committees and task forces were formed in the past to reform the cooperative sector. Major political parties had also committed to reforming and developing the cooperative sector in their manifestos for the 2082 parliamentary elections.

The importance of cooperatives

The reasons why cooperatives have been considered important since the beginning of democracy are clear. Cooperatives promote inclusive economic growth, create sustainable employment, reduce poverty and mobilize local resources for local development. Based on democratic values, equality, solidarity and community welfare, cooperatives empower marginalized groups, strengthen social inclusion, develop leadership and promote community unity.

By maintaining a balance between economic behavior, social justice and environmental sustainability, cooperatives act as a community-centered model for sustainable development and long-term national prosperity. In addition, cooperatives provide opportunities for women, who are often disadvantaged in the public and private sectors, to participate in economic activities and decision-making processes.

Through the principle of ‘one member, one vote’, cooperatives also foster the development of a democratic culture. Open membership and a spirit of mutual cooperation help build trust and strengthen social capital. Opportunities for dialogue and consensus-building naturally expand when people with different political beliefs work together within the same organization. Collective savings, risk-sharing and mutual assistance systems help build trust within the community.

In times of disaster, economic crisis or social stress, cooperatives can provide important structures of relief and mutual support. Through this process, social capital is strengthened and the foundations of trust and cooperation become stronger.

The ongoing conflicts in the Middle East, the increasing uncertainty in international trade and the weakening of traditional sources of economic growth have further increased the importance of cooperatives. Cooperatives have the ability to organize and mobilize scattered local resources, human capital and even the families of migrant workers working abroad in productive activities in the production, finance and service sectors.

In economically disadvantaged areas, cooperatives can help break the cycle of poverty by improving access to assets, financial services and markets. They can also help transform external risks into opportunities for inclusive and sustainable development by strengthening domestic economic capacity.

Cooperatives play a key role in addressing structural weaknesses such as low investment and widespread informality in rural areas. The role of cooperatives can be particularly important in agriculture, dairy farming, savings and credit services and other community-based services where government presence is limited or private investment is less attractive.

Through savings mobilization, targeted credit flow and mechanisms for collective technical assistance and risk sharing, cooperatives can guide remittances towards productive uses. In areas where formal banking services are limited (especially in hilly and mountainous areas), savings and credit cooperatives promote financial inclusion, provide training and seed capital to small entrepreneurs, and help maintain local employment.

By strengthening local value chains in agriculture, energy, transport and services, cooperatives increase domestic value addition, mobilize domestic savings for local investment and reduce vulnerability to geopolitical and cross-border disruptions. Through mutual support and collective funds, they also strengthen social solidarity and community resilience against economic, climate-related and market-related shocks.

Nepal’s current political environment is sensitive and fragile. Political parties, internal factions and groups based on region, religion, culture, profession and social identity are divided. In such a situation, economic, political, social and cultural coordination is essential for long-term national stability and unity. Since cooperatives are inherently based on partnership, participation and inclusiveness, their role can be crucial in promoting such coordination. Cooperatives connect people of different races, classes, regions and professions on a common economic platform. Cooperatives help reduce economic inequality through a system of shared savings, investment and profit sharing, and develop a sense of collective ownership.

Cooperatives contribute to maintaining regional balance by connecting rural and urban areas, hills and plains, and marginalized communities to production systems, financial services and markets. Expanding economic opportunities for small farmers, women, Dalits, indigenous peoples and other disadvantaged groups also helps reduce social tensions.

Economic cooperation encourages the development of a sense of common good by rising above political divisions. It reduces polarization and promotes a culture of cooperation. Democratic leadership developed at the grassroots level can have a positive impact on national political culture. In this sense, cooperatives can become like practical schools of political socialization.

Cooperatives can operate based on local culture, language and traditions, which strengthens unity while respecting diversity. Cultural identity can be linked to economic empowerment through the preservation and promotion of local products, handicrafts and agricultural traditions.

Regular interaction between different communities through cooperative activities reduces cultural distance and helps to practically realize the principle of ‘unity in diversity’.

Challenges of cooperatives

Despite the potential, cooperatives have not been able to make the expected contribution due to various challenges. Although great importance was given to cooperatives in the early days, attempts were made to operate them under government control and guidance, contrary to the principle of self-regulation of cooperatives. Although the concept of self-regulation was adopted since 2048, the minimum basis for the successful operation of cooperatives was not prepared. The regulatory system should have been effective when operating cooperatives under self-regulation, but it was not. Regulatory capacity and supervision remained very weak, which increased the risk of mismanagement and fraud.

Although the number of cooperatives has increased numerically rapidly, the qualitative development has not been as expected. There are approximately 33,000 cooperatives among a population of 30 million in Nepal, of which about half are savings and credit cooperatives. In India, there are about 845,000 cooperatives among a population of 147 billion, of which 189,000 are savings and credit cooperatives.

Accordingly, the density of cooperatives is comparatively high in Nepal, and the density of savings and credit cooperatives is even higher. In practice, the word ‘cooperative’ in Nepal has become synonymous with ‘savings and credit cooperatives’. Some cooperatives have been established with commercial or abusive intentions rather than the spirit of cooperatives. Some institutions have collapsed due to speculative high-risk investments in real estate against the law. Weak governance, family-controlled management, lack of member participation, collusion with regulators, and misuse of deposits have seriously damaged public trust.

The problem has been further complicated by the lack of capacity and political interference in federal, provincial, and local regulatory bodies. The proliferation of non-cooperative activities in cooperatives has created a situation of ‘cooperative crisis’. Due to this, thousands of cooperatives operating in accordance with the spirit of cooperatives have been neglected.

Concept of national political parties regarding cooperatives

National political parties have made the following promises to reform the cooperative sector in their manifestos for the 2082 parliamentary elections

: The National Independent Party has committed to bringing the entire non-banking financial sector under the strict supervision of Nepal Rastra Bank, regulating cooperatives with assets above Rs. 500 million like ‘D’ category financial institutions, and establishing a powerful second-tier regulatory body for small organizations. It has put forward a plan to end loan duplication and loan traps by linking it to the Credit Information Center, limiting interest rates to the base rate, and focusing loans on productive sectors. The party has also made it clear that it will return the money of small savers through the ‘Integrated Savings Protection Fund’ within 100 days of the formation of the government and will adopt a policy of emphasizing recovery of money through solutions rather than jail.

Nepali Congress has expressed its commitment to strengthen the cooperative sector through strict regulation, zero tolerance against fraud and effective implementation of the Savings Protection Fund, highlighting its historical role in recognizing cooperatives as the third pillar of the economy. Similarly, it has also expressed its commitment to return the money of small savers, implement savings insurance, confiscate the assets of fraudsters, and arrange strict monitoring for large cooperatives through the National Cooperative Regulatory Authority and Nepal Rastra Bank. In addition, Nepali Congress has also expressed its commitment to make the cooperative system completely digital, clarify the regulatory role of the union and provinces, promote the 'one village, one product' model and restore trust in the cooperative sector by fully implementing the parliamentary inquiry report.

UML has expressed its commitment to restore cooperatives as a safe, transparent, production-oriented and member-centric economic pillar. It has put forward a plan to strengthen the rural economy through agriculture and value chains, implement a complete digital system and expand the market through branding and e-commerce. The UML has also expressed its commitment to establish a long-term national cooperative policy, integrated regulation, strict action against fraud, establish a savings return guarantee fund, connect youth and marginalized communities to employment, and run capacity development programs.

The Nepali Communist Party has expressed its commitment to ensure effective supervision of savings and credit cooperatives, ensure minimum capital return for cooperatives affected by the impact of the transition but capable, bring a special revival package, and promote a collective and cooperative-based production system in the agriculture, tourism, processing, industry, and information technology sectors.

The Rastriya Prajatantra Party has expressed its determination to control organized fraud, distortions, and anomalies seen in cooperatives, to secure the savings of savers and use them for productive and employment-generating activities, and to collect, pay, and provide relief to the general public who are victims of organized fraud.

Thus, all national political parties have put forward various formulas for cooperative reform. In addition, there are many other areas of reform for cooperative reform. Nepal needs a phased and systematic roadmap that will resolve the current cooperative crisis and modernize regulation under a federal structure. And, reorient cooperatives towards production, job creation, and inclusion, rather than limiting them to savings and credit.

Suggestions on Cooperative Reform

Cooperative reform has become urgent and inevitable in Nepal. It is no longer just a limited political issue but a national priority, requiring a clear long-term vision, broad consensus, and sustained implementation. Cooperatives cannot effectively play their strategic role in economic development without addressing long-term governance issues such as weak regulation, political interference, and poor financial management.

In this context, it is important to first consider the fact that the Constitution clearly mentions cooperatives as one of the three pillars of national economic development, namely public, private, and cooperative, and provides them with formal constitutional status as not just supporting institutions for national economic development. According to this structure, the public sector (state) should make rules, provide basic public goods and services, and regulate them, while the private sector should lead economic development by operating for-profit investments and enterprises. The cooperative sector should act as a bridge between the public and private sectors as democratic, community-based enterprises that prioritize member welfare and local development. This means that cooperatives should not be seen as an alternative to the public and private sectors, but rather as a complement to them.

Future policies should focus on improving the quality, inclusiveness, and effectiveness of cooperatives rather than expanding the number of cooperatives. While maintaining a balance in the cooperative sector, priority should be given to agricultural, production, market, consumer, and service-based cooperatives, reducing excessive dependence on savings and credit cooperatives. This directly supports the real economy.

Cooperatives, especially in the agricultural sector, should play a transformative role. To address the labor shortage caused by foreign employment, cooperatives should provide access to modern technology to small farmers through collective ownership and rental systems of machines such as tractors and harvesters. This increases productivity and reduces dependence on labor. In addition, the agricultural process should be made more effective through integrated services from land preparation to marketing. Agricultural processing, packaging, branding and value chain development should be prioritized to improve market access and competitiveness.

Cooperatives should also contribute significantly to the use of remittance income in productive sectors. Although foreign employment increases cash income, it reduces rural labor. Cooperatives should create opportunities to invest these funds in agriculture, irrigation and mechanization through savings and investment. This should encourage the use of sustainable and labor-saving technologies along with agricultural modernization.

Cooperatives should also play an important role in managing the local labor market. Effective utilization of limited labor resources should be ensured by adjusting labor availability, wage rates and work schedules. In addition, women and senior citizens who are shouldering agricultural responsibilities due to increasing foreign employment should be empowered through training, loans and participation in the decision-making process. Similarly, special programs should be conducted to develop youth leadership and increase women's economic participation. This will strengthen social inclusion along with economic production.

Strengthening good governance and financial discipline is also essential. In addition to implementing qualification criteria, term limits and codes of conduct for leadership, standardized accounting systems, mandatory external audits and public disclosure of financial statements should be ensured. Performance indicators such as membership growth, credit quality, capital adequacy and financial sustainability should be regularly monitored and used in policy reform.

Digital transformation is another key foundation for increasing efficiency, transparency and accountability. Therefore, digitizing operations, financial reporting and member services should be prioritized.

Wide public awareness should be spread about the values, norms, principles, standards and international best practices of cooperatives, which will help potential members understand the suitability of joining the cooperative. Cooperatives should also assess the suitability of potential members. Instead of granting immediate membership, it is appropriate to have a mutual understanding period of about 6 months.

It is necessary to systematically educate members, board of directors, managers and employees on the principles of cooperatives, good governance, financial management, risk control and the legal framework of Nepal.

Strong regulatory, legal and institutional reforms are necessary for the overall improvement of the cooperative sector. The responsibilities of regulation and promotion should be clear and coordinated between the federal, provincial and local governments. It is also necessary to systematize this sector by significantly reducing the number of weak or inactive cooperatives. Overall, the number of existing cooperatives should be reduced by more than two-thirds. And, cooperatives should be properly classified.

Ensuring the safety of savers is another major priority. The cooperatives and responsible persons involved in fraud, their family members or even assets in hidden names should be confiscated and sold, and the savings of the victims should be returned.

The guilty should be divided into two categories, intentionally and situationally. While deliberate fraudsters should be subject to strict legal action and harsh punishment, practical measures such as debt restructuring, mergers, conversion of deposits into partial shares, and institutional support should be adopted for those in real trouble.

The government should also consider returning a limited amount (such as up to Rs. 5 lakh) to protect small savers. In addition, a policy of minimizing future risks by implementing a deposit insurance system, as in other countries, should be adopted.