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Badri Kumar Guragain: Cooperatives Blueprint of Nepal

The state has not been able to give priority to the cooperative sector in line with the three-pillar economic policy and socialism-oriented economy envisioned by the constitution. Guragain, in the write-up presents how this important sector can be nurtured well. - Editor

Badri Kumar Guragain: Cooperatives Blueprint of Nepal

Badri Kumar Guragain is the Chief Executive Officer (CEO) of National Cooperative Bank Ltd (NCBL) with over 16 years of experience in finance, budgeting, planning, management and consulting. Currently, he is pursuing PhD in risk management of financial cooperatives in Nepal. He has also been awarded with ‘Prabal Janasewashree Chaturtha Shreni’ by the President of Nepal for his contribution in the cooperative sector.

Guragain, in this cooperative blueprint, has presented a report on the cooperative sector on four dimensions—present condition, challenges, way forward and the outcome. 



Cooperatives occupy a foundational tier in Nepal’s financial ecosystem, focusing on empowering and supporting impoverished communities. They primarily serve individuals lacking skills, capital, and land, who constitute the cooperative’s target demographic. Despite receiving training, resources, and credit assistance, businesses within these communities often operate at a modest scale and face vulnerability, necessitating additional support such as insurance provided by cooperatives. As these businesses gradually expand and thrive, banks, the subsequent component of the ecosystem, extend their services to accommodate them. Thus, the primary goal for cooperatives is to empower poverty-stricken communities, ensuring their sustainable growth and development.


Cooperatives ought to prioritize production-driven initiatives to effectively contribute to the economy, functioning as a genuine sector. However, in Nepal, cooperatives often charge the highest loan interest rates. This contradicts the cooperative ethos of cooperation and undermines its true essence. To rectify this, cooperatives should focus on establishing a presence in marginalized areas and empowering residents with lower interest rates, subsidies, resources, and skills. Achieving this necessitates an alternative channel for resource provision, as cooperatives cannot rely solely on their deposits. Therefore, capital from the Youth and Small Entrepreneurs Self-Employment Fund which has around Rs 20-25bn, along with the 4 percent lending allocation by banks for deprived sectors (total around Rs 200bn), could be utilized. 

Mission drift

The ongoing crisis in the cooperative sector stems from past mismanagement and misuse. Historically, cooperatives have been community-oriented enterprises. However, there has been a decline in the spirit of community and cooperation within these entities. Factors contributing to this include management practices centered around promoters, marginalization of member roles, disregard for legality and due process in favor of individual interests, restriction of meaningful member participation to secure personal assets, and a shift towards individual benefit rather than collective financial gains. Hence, there is a misalignment between the intended purpose of cooperatives and their actual utilization—a mission drift.

Regulatory bodies

It is said that cooperatives rely on self-regulation, but as they grow in size and turnover, the need for an effective regulatory body becomes unavoidable to safeguard members’ savings and trust. Presently, the cooperative sector is overseen by a group of civil servants within the administration, yet the effectiveness of this regulation and monitoring is hindered by inadequate coordination in managing the detailed internal affairs and financial risks of cooperatives. This suggests a need for structural modifications—a second tier regulation system. Certain services offered by the country’s banking sector and financial cooperatives are similar in nature. However, differences in regulatory provisions create challenges. In cases where regulatory systems are weak, there’s a heightened risk of financial misconduct and tarnishing the reputation of the entire sector.

Youth and skilled human resources

The cooperative sector faces a shortage of skilled human resources, largely because the younger generation is not drawn to it. Additionally, existing employees often lack even basic knowledge of cooperative norms, values, and principles. This suggests that skilled individuals may not be attracted to the sector due to inefficiencies in employee selection, training, career development, service provision, and working conditions. As institutional governance weakens and the sector’s reputation declines, employee turnover rates escalate, contributing to high migration from the cooperative sector. It appears that cooperative organizations have made minimal efforts to enhance the capacity of their current workforce.

Community spirit

Cooperative business operates on principles distinct from individual entrepreneurship and open-market dynamics, prioritizing collective interests and common needs. However, there’s been a departure from upholding fundamental norms and values such as self-reliance, accountability, democratic management, equality, justice, and solidarity, with some businesses operating beyond the organization’s intended scope. The responsibility for self-regulation has been neglected, and cooperative education has been reduced to mere formality. As a result of inadequate coordination among cooperatives, the collective spirit inherent to cooperatives is diminishing.

Asset/liability analysis

The organization needs to conduct a thorough analysis of the costs associated with resource collection and the profits generated from its operations. This analysis should include an examination of financial sources such as share capital, funds, deposits, and the ratio of external debt. It appears that the cooperative sector is encountering challenges due to insufficient analysis. Specifically, cooperatives are grappling with a liquidity crisis, primarily stemming from their practice of investing in long-term loans and fixed assets using short-term deposits.


Cooperatives must avoid functioning as parallel banks. Reports from the National Planning Commission and other institutions pinpoint regions with high poverty rates and less resources, which cooperatives should prioritize. They should refrain from extending loans to financially capable individuals who can readily access funds from traditional banks. By concentrating efforts on underserved areas and directing resources to those truly in need, cooperatives can fulfill their intended purpose more effectively.

Way forward

The government should take the lead in returning depositors’ money in installments, prioritizing the poor and needy, especially those with relatively small amounts (less than Rs 500,000) that are crucial for their livelihood. As a first step, the property of cooperative management teams and employees should be frozen. To facilitate these payments, the government can introduce various schemes, such as tax-free funds. An amount of around Rs 10-15bn would be sufficient for this purpose, which can later be reimbursed to the tax-free fund investors by auctioning off the property of those responsible for mismanaging the cooperatives.


Understanding the true essence of cooperatives and addressing all mismanagement issues while aligning with the aforementioned directions will lead to a reduction in multidimensional poverty and an increase in per capita income. As we approach graduation from Least Developed Countries (LDCs), access to loans at lower interest rates and subsidies from the World Trade Organization may diminish, potentially resulting in inflation, given our import-dependent market. However, a thriving cooperative sector can bolster locally-produced goods, meeting domestic demands and mitigating these challenges.