Economic implication of Co-operative movement with reference to agriculture of Nepal:

 Economic implication of Co-operative movement with reference to agriculture of Nepal:

  1.      Introduction/Background:

The co-operative concept in the form of Guthi, Parma, Dhikuri, Dharmabhakari etc has been used from a very beginning in Nepalese societies. Characteristics of these historical social institutions are almost resembled with primary form of co-operatives. For the institutional development of such societies, the then government aimed to adopt co-operative system as a means for economic social and cultural development of the people as well as an appropriate and effective tool for rural development. The then government established the Department of Co-operative under the Ministry of Planning, Development and Agriculture in 1953 A.D (2010 B.C). The modern cooperative movement initiated from Rapti Valley (Chitwan District) as a part of flood relief and resettlement program. At the first time 13 credit cooperative societies established in 2013B.S. were provisionally registered under the executive order of the then government which got legal recognition after the enactment of Cooperative Societies Act 2016B.S.(1959A.D.). The first Co-operative Societies Act was revised several times and it was replaced by the Sajha Societies Act in 2041B.S.(1984A.D.). After the restoration of multiparty democracy the Sajha Societies Act was replaced again by the Co-operative Act 1992. The Department of Co-operative has provided the authority for registration and regulations of co-operative societies/unions/federations under the Acts.

The interim Constitution of Nepal, 2063 has considered Cooperative sector as one of the three pillars for national development. Several types of cooperatives societies operated in the country are Saving and Credit, Multipurpose, Dairy, Agriculture, Fruits and Vegetables, Bee Keeping, Tea, Coffee, Consumers, Energy, Communication etc. including production, financial and service. Nepal has initiated its cooperative movement after 1950 AD. Policy and programs launched by the government have emphasized the importance of Cooperative modality to maintain peace in the society by means of self employment and to expedite the development works. It is believed that some 3 million people are already affiliated so far in more than 20000 cooperatives and more than 50000 people are employed directly in Cooperative business.

2.      Status of Cooperatives in Nepal

 

With the restoration of democracy in 1990 and promulgation of a new Cooperative Act in 1992, there has been resurgence in the cooperative movement in Nepal. This is evidenced by the fact that the number of registered cooperatives has grown to 9362 ( Statistics on Nepalese Cooperative Societies & Unions, Government of Nepal, Ministry of Agriculture & Cooperatives, Department of Cooperatives, 2007, July 9) as of the record up to April 13, 2007, compared to 830 in 1990. With the increase in number, cooperatives have diversified their involvement in micro & medium level enterprises. Indeed cooperative sector is flourishing one of the largest private sector business enterprises in Nepal. One of the factors that have contributed to the rapid expansion in both the number and the enterprise coverage of cooperatives is the new policy and legal regime allowing grassroots based spontaneous initiatives of communities to organize themselves into cooperatives for doing business and serving the communities. This is in contrast to the government led and government directed cooperatives prior to 1990.

There are presently nearly 9,362 primary cooperatives and these are federated into a number of subject-specific cooperative unions at the district level (72), district cooperative unions (49), central cooperative union (5), and 1 national cooperative bank. The National Cooperative Federation is the apex level representative body of all the cooperatives at the national level. Among the five central level cooperative

unions, there is one each for dairy, coffee, fruits and vegetables, consumers, and savings and credit.

Department of Co-operative have the following vision, mission, goals and objectives:

Vision:

The long term vision is to develop cooperatives as one of the lead sector for economic development of the country.

Mission:

The mission of the Cooperatives Department is to develop the values and principles based cooperatives in the country and the plan would be delineated for the fulfillment of long term vision.

Goal:

  • Cooperatives will be developed as the foundation pillar of the economy for the economic growth, member saving deposits mobilization, operation of agriculture and micro-enterprises, and creating awareness of the people on Cooperative concepts.
  • Cooperatives will be developed as the medium to address the economic, social and cultural needs of people as a mechanism to contribute in community development and service delivery.

Objectives

  • To create conducive environment for the establishment of member base cooperative societies based on membership following cooperative principles and values to fulfill the needs of their members.
  • To collect small and scattered amounts of resources from the member at local level to create an economic force and to invest those resources for their own economic, social and cultural development.
  • To promote Co-operative system as a means of economic, social and cultural development of the marginalized people living in the country.
  •  A Co-operative system will be developed as a means of transforming the traditional mode of agricultural and non-agricultural production into commercial production in rural level.
  • To motivate stakeholders to operate co-operative movement based on the cooperative rules, regulations and principles.
  • Co-operative societies unions federations are used as the effective local institutional mechanism to achieve the national goal of “poverty alleviation.”

Cooperative Act, 1992

The preamble of the Cooperative Act, 1992 has quoted as “Whereas it is expedient to provide for the formation and operation of various type of cooperative societies and unions for the social and economic development of the country’s farmers, workers, artisans, people possessing inadequate capital and low income groups, landless and unemployed people or social workers for the benefit of general consumers on the basis of mutual cooperation and cooperative principles.” The important provisions of the Cooperative Act, 1992 includes registration of cooperative societies/unions, distribution of membership, operational procedures, appointment of registrar, authority of registrar, delegation of authority, mobilization of resources, integration and disintegration of cooperatives, system of information recording and auditing of accounts, rebates and incentives to cooperatives, dissolution and liquidation of cooperatives, regulations and penalties to defaulters etc. Some special features of the Act are simple registration procedures, legal and corporate personality, equality, elected board of directors, voluntary membership, autonomy, self regulatory mechanism, federal structure of cooperative movement, limited liability of members, wide scope of cooperative business etc.

Cooperative Movement                                                     

At the beginning the then government emphasized on the concept of self-help in order to accelerate the development process at local level aimed to mobilize resources for socio–economic development of people through co-operative movement. Co-operative Department had provided authority and made directly involved in establishing, operation and regulating co-operative societies and unions. After the restoration of democracy in 1990 A.D (2046 B.S.), the democratic government enacted the Co-operative Act 1992 A.D (2048 B.S) and the Co-operative Regulations 1993 A.D (2049 B.S.) The new Cooperative Act has provided an opportunity to the Nepalese people to establish independent and autonomous co-operative societies by themselves, according to their capacity to fulfill their own needs. The Co-operative Act 1992 A.D (2048 B.S) has firmly accepted the cooperative principles and provided a legal base both for the establishment of co-operative societies/unions/federations and application of co-operative values, norms and principles into practice. At present, the Department of Co-operatives is working under the Ministry of Agriculture and Co-operatives to enhance the local entrepreneurship as well as to develop local leadership through the promotion, regulation and development of Co-operatives for economic, social and cultural development of their members.

Types of Cooperatives:

  1. Agricultural Cooperatives
  2. Dairy Cooperatives
  3. Small Farmer Cooperative (SFCL)
  4. Coffee Cooperatives
  5. Multipurpose Cooperatives
  6. Herbal Cooperatives
  7. Tea Cooperatives
  8. Electricity
  9. Savings and Credit Cooperatives
  10. Health Cooperatives
  11. Science and Technology Cooperatives
  12. Consumer Cooperatives
  13. Other Cooperatives

The Cooperative Act 1992 has firmly accepted the cooperative principles and provided a legal base both for the establishment of cooperative societies/unions/federations and application of cooperative values, norms and principles into practice. At present, the Department of Cooperatives is working under the Ministry of Agriculture and Cooperatives to enhance the local entrepreneurship as well as to develop local leadership through the promotion, regulation and development of cooperatives for economic, social and cultural development of their members.

Introduction of National Cooperative Federation of Nepal

Introduced Cooperative Movement in 1956 with the objective of rehabilitating the flood-stricken people and raising living standard of people.  Established the National Cooperative Federation of Nepal (NCF/N) for leading the cooperative movement on June 20, 1993. The vision of national cooperative federation is to promote and establish such Nepalese civil society where the Democracy, Equality, Solidarity, Social justice, Caring for other and Gender-Balanced sustainable development through cooperation will be prevalent. It has the mission to unite, lead, represent and serve members through their cooperatives at all level for their economic, social & cultural development.

The objective of the National Cooperative Federation of Nepal is

  • To promote and develop the cooperative movement in Nepal on the basis of the cooperative principles and the people’s needs with their own initiative and participation.
  • To promote, strengthen and develop the cooperatives through cooperative trainings, education & specific projects in order to make efficient & viable cooperatives.
  • To organize seminars, workshops, awareness creating programs on the emerging issues & lead the movement for safeguarding & practicing the cooperative norms, values & principles.
  • To promote the business for the economic benefits of the members by way of developing marketing networks for products.
  • To provide leadership to the cooperative movement and to represent on behalf of cooperatives in the Government & other national and international forums.
  1. 3.     Impacts of Cooperatives at agriculture sector in Nepal:

 

Co- operatives have direct and indirect impacts on socio-economic development by promoting and supporting entrepreneurial development, creating productive employment, raising incomes and helping to reduce poverty while enhancing social inclusion, social protection and community-building. Whilst cooperatives directly benefit their members, they also offer positive externalities for the rest of society, and have a transformational impact on the economy. Some of the specific ways cooperatives contribute to development goals include:

Agricultural cooperatives play an important role in food production and distribution, and in supporting long-term food security.

Agricultural cooperatives also promote the participation of women in economic production, which, in turn helps in food production and rural development: through cooperatives, women are able to unite in solidarity and provide a network of mutual support to overcome cultural restrictions to pursuing commercial or economic activities. For example, women-only cooperatives in South Asia facilitate economic independence and improve the social standing of women through their active participation in businesses and management. A survey in Nigeria indicated that compared to non-cooperative members, women engaged in cooperative activities were better off, both in terms of productivity and economic well-being.

Financial cooperatives (credit unions, savings and credit cooperatives or cooperative banks) enable easy access to savings and credit at low-cost. They work by pooling limited capital: members‘ mandatory purchase of ownership shares in the cooperative and their deposit/savings accounts serve as the funding base to enable the cooperative to extend credit to members. Financial cooperatives are the largest providers of microfinance services to the poor. It is estimated that globally, financial cooperatives reach 78 million clients living below a poverty line of $2 per day. In South Asia, for example, 54.5 per cent of borrowers living below $2 per day were served by cooperatives, compared to 19 per cent served by other microfinance providers. Financial cooperatives thus play a central role in the achievement of an inclusive financial sector that encompasses the poor.

Financial cooperatives contribute to poverty reduction in various ways. Access to credit to finance micro, small and medium enterprise generates employment and incomes. Low-cost savings facilities for the poor and small depositors help to reduce members‘ vulnerabilities to shocks such as medical emergencies, and encourage future investments, including education and small business enterprises. Empirical research of the last decade has demonstrated that demand for savings services exists, even among the poorest. If formal means of savings are unavailable, poor people tend to use livestock, jewellery or other informal arrangements that typically have a low or negative interest rate. For people living in poverty, savings is critical to counterbalance the cyclicality of income.

In Nepal, cooperatives are substantial providers of social and economic protection, especially health coverage and loan. In some countries, they participate in the management of compulsory health insurance or provide services through their networks of health and social facilities. Governments have partnered with cooperatives to extend social protection. For example, the Yeshasvini Cooperative Farmers Health Scheme (Karnataka, India), which serves 2 million people, is financed by members, annual premium contributions and government subsidy.

Cooperatives have been instrumental in peace building. In Sri Lanka and Nepal, cooperatives have been the only independent organizations allowed by all parties to operate in conflict zones.

The report points out that like other business enterprises, cooperatives have limitations, and will thrive in supportive environments and struggle in others. The success of cooperatives is a function of capable management and governance and the ability to adapt to prevailing business conditions. The primary means therefore of leveraging cooperatives for socio-economic development is to promote their formation and growth in a sustainable manner, consistent with cooperative values and principles and respectful of their autonomy. This requires a sound policy and legislative framework and a level playing field vis-à-vis other enterprises’.

The programme-promoted by the cooperative had wider reach compared to the self-promoted ones as they had poverty alleviation as their objective.

Loan Utilization

Loans were mostly taken for productive purposes, social activities, purchasing and repairing assets, and for repaying previous loans. In particular, women borrowers mostly took loans for social activities and for repaying previous loans. In most cases, loans were used for the stated purpose; in some cases, however, loans taken for one purpose were diverted to other purposes. Women members often did this to spend money on the most needy aspects of the household.

Sources of Loan

Members approached other financial service providers if the loan products offered by their co-operatives did not meet their financial needs. Such financial service providers included banks, other cooperatives, savings groups, moneylenders, friends, neighbours  and relatives. Non-member households were more dependent on moneylenders than member households were. Due to the loan services provided by the cooperatives, member households were less likely to approach other sources of loan than non-member

households were.

Repayment Problem

There were a few repayment problems. Most of the borrowers who had problem in repaying their last loans had invested them in non-profitable activities. Those members who had repayment problem had taken loans from other financial sources. This suggests that, in such cases, they had used the loans to repay the loans taken from their cooperatives or had used the loans taken from their co-operatives to pay the loans taken from other sources.

Diversification, Profitability and Profit Use

Those members that had taken their last loans for a number of different purposes usually had made profit out of them. Higher profit was generated when members used higher amount of last loan in diversified income-generating activities. In addition, the larger the size of the last loan taken and the number of skill development training inputs received, the higher was the profit.

The most important use of profit was seen as ploughing it back into the enterprise. Other uses included purchasing food and other household stuffs, which was the best thing they could do with their profits.

Increase in Income

The incomes of cooperative members noted higher increases since they joined the cooperatives as compared to non-member households. This fact was supported by evidences of higher increases in the assets of member households compared to nonmember households.

Expenditure Pattern

The per capita expenditure on food consumption of member households was higher than that of non-member households. This suggests higher income of member households compared to non-member households.

Health expenditures of member households were lower than those of non-member households. One possible reason for this is that the member households were more aware of preventive health than non-members were due to the intervention by co-operatives.

This indicates that the cooperatives have contributed substantially to making their members more aware of their own as well as their family members’ health. Expenditures of member households on purchasing of assets such as land, gold jewellery, house, vehicles, etc were higher than those of non-member households. This indicates greater increase in the incomes of member households than those of non-member households.

Similarly, expenditure of member households on their children’s education was more than that of non-member households. This shows that members gave more priority to their children’s education than non-member households did. This may be mainly because of two reasons: first, now they had the money to do so, and, second, the attitude of member households towards the schooling of their children had seen a positive change compared to non-member households.

Well-being Status

Member households consumed nutrient food items such as meat, milk, egg, fruits, etc more frequently than non-member households did. Similarly, the diet of most of the member households had improved.

It is assumed that children are not sent to school because of poverty, lack of awareness of importance of education and engagement of children in household chores. The proportion of teenage children attending school was higher for member households as compared to non-member households. Interestingly, however, among non-member households, more female than male children were sent to school, whereas the reverse was the situation in the case of member households. Member households were more likely to have pukka (cemented with tin roof) latrines than non-member households.

Empowerment

Women’s involvement in decision-making in different matters, including household decisions, was taken as a proxy indicator of their empowerment. Involvement of women members in decision-making in various matters, such as opting for family planning, buying and selling assets, participating in community development, participating in community meetings, voting, taking loans, using loans and profits, was higher than that of non-member women. In addition, women members were more informed about human

rights and women’s rights than non-members were. Their involvement in various exposure programmes and community development activities of cooperatives had made their mobility much higher than that of non-members. This had helped women members to increase their knowledge of different issues, which, in turn, had contributed to their empowerment.

Wider Impact

The micro-finance and other services provided by the co-operatives had generated impact not only on the livelihood of members at individual and household levels, but also on the community. The impact was in terms of decrease in interest rates, principally those charged by moneylenders, within the community; availability of better financial services in the hills; establishment and expansion of markets in the community; and build-up of social capital.

Contribution towards the Millennium Development Goals (MDGs)

The financial services provided by the co-operatives had contributed to increasing the incomes of the people in the hills. Similarly, capacity-building activities such as technical services, training, etc provided cooperatives for their members had contributed to creating self employment opportunities and increasing their incomes. In addition, their activities had contributed to women’s empowerment, educational status, health and sanitation situation, and asset accumulation of the client base, thus improving the well-being of the people living in geographically difficult areas. These, in turn, had contributed to the government’s poverty alleviation efforts. In addition, the involvement of cooperatives in community development activities had contributed to the development efforts of the country as well as to addressing the development issues of the Millennium Development Goals (MDGs).

 

Socio-economic Impact:

The cooperatives model was effective in providing financial and social services for the community people living in the hills. This model has, therefore, a role to play in poverty reduction and development in remote hill areas. Therefore, the government programmes and/or I/NGOs should continue to promote the poverty-focused cooperatives model to improve access of financial services to the poor in the remote hill areas.

Self-promoted versus Programme-promoted Cooperatives

The self-promoted cooperatives had better financial performance and better performance in book- and record-keeping than the programme-promoted ones had. The programme promoted cooperatives, on the other hand, were strong in community development and in reaching the poor. The self-promoted cooperatives were strong in financial management because the promoters of these cooperatives were social elites who had experience in the field of micro-finance, banking and cooperatives. On the other hand, the programme promoted cooperatives were strong in the areas of community development and targeting the poor because of the mandatory provision of their promoters. Again, the self-promoted cooperatives had better outreach in terms of membership size and were providing a greater variety of savings and credit products to their members in comparison to the programme-promoted ones. Looking at conditions such as geographical remoteness, low level of cooperative education, high illiteracy, lack of financial management skills in remote hilly areas, the self-promoted coperatives model, without any capacity building and technical assistance package, may not be widely replicable. Therefore, the government and non-government programmes should promote cooperatives in rural hilly areas, along with capacity building and technical assistance package, for the first few years so that they can serve the poor people as sustainable micro-finance institutions (MFIs).

The donor agencies should focus their support on promoting international best practices adapted to the national context.

Improvement in cooperative Services

Many cooperative members were found seeking different sources of loan, which implies that the existing financial services provided by cooperatives were not sufficient to cater to the needs of their members.

Therefore, cooperatives should diversify their financial products as per the needs of members, for which they should conduct market research. Although the sample cooperatives intended to provide diversified loan services, they could not do so for insufficient capital base. Therefore, they should raise the required capital either internally or by accessing funds from external lending agencies. The programme-promoted cooperatives had more focus on social intervention than the self-promoted ones.

Therefore, the self-promoted cooperatives should initiate social intermediation programmes such as literacy, health awareness campaign, skill development training and community development activities to motivate as many community people as possible. It is not possible to meet such expenses from their own funds. They should explore additional resources from NGOs and donor agencies for the initiation of social intermediation programmes.

The GOs and/or I/NGOs operating in such areas should develop a forum that facilitates information exchange mechanism for cooperatives at local level.

Targeting the Poor

Although cooperatives, especially the self-promoted ones, had relatively great outreach, they had problems in reaching the ultra poor in their working areas. Their membership being voluntary, those who were aware and literate joined the programme and the poor were left behind. They had no special programme that emphasized motivating the poor to join them. Similarly, the existing products and services were not affordable for the poor community people.

Therefore, cooperatives should address these problems by developing strategies that would motivate the poor people to join them. cooperatives should receive training and technical assistance either from their own resources or through support of their promoters to increase their institutional capacity.

Wider Impact

The activities of cooperatives were found effective in generating wider impact in their areas of operation in addition to the general impact on the livelihood of members at individual and household levels. Enhancing institutional capacity of hill-based cooperatives would increase their scope for generating wider impact. Furthermore, promotion and strengthening of cooperatives in remote hilly areas of the country would not only contribute to have wider impact but also to achieve the MDGs. Therefore, the government should design and implement policies that focus on the promotion and strengthening of cooperatives in rural hilly areas.

 

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s