Kathmandu University School of Management

KUSOM

Cooperatives and Micro financing

Assignment 2.1

Submitted by:

Ashansa Mulmi

177065

Section B

Submitted to:

Mr. Narahari Dhakal

Faculty Member

Cooperatives and Micro financing

March 30, 2021

1. Why is diversity quite common among Nepalese cooperatives?

As per the Department of Cooperative, there are about 6 million members of the 34,512
cooperatives in Nepal, with the major types of cooperative societies being Saving and Credit,
Multipurpose, Dairy, Agriculture, Fruits and Vegetables, Tea, Coffee, Bee keeping, Consumers,
Energy, and Science and Technology (Source: nefscun.org.np). And because there are thousands
of co-operatives operating in the economy, all established with varying purposes, there is indeed
diversity across the cooperative societies.

To put it simply, cooperatives are the voluntary associations of people that have a certain
purpose, according to which they operate as an entity, to achieve their common economic, social
and cultural needs. In Nepal, cooperatives have been established far and wide, across the varying
geographical lands and culturally-diverse communities. Because cooperatives operate in different
communities, all having different cultures, it further points out the diversity in the cooperatives
in Nepal. Further, going into depth, we can observe that all cooperatives have different purposes,
a diverse set of goals to help in the growth of their members. Such that there are Saving and
Credit cooperatives, operating with the purpose to promote Saving and lending purposes to its
members. Similarly, Milk cooperatives operate to assist the dairy farmers in the growth of their
business. Moving further into the subject matter, even the services provided by cooperatives are
diverse in the sense that the needs of their members are diverse, those of which can be met only
through the availability of a diverse set of services; such as different members may require the
different services from a Producer cooperative to process, market and distribute products to
increase production efficiency and market performance. Hence, these reasons explain why
diversity is common among cooperatives in Nepal.

2. Why there are challenges on the operation and management of the cooperatives in
Nepal?

In an economy dominated by Banks and Financial institutions, there are still various challenges
that create many problems. So is the case for Nepalese cooperatives; there are various challenges
and problems that cooperatives face, which obstructs their operation and management.
Folowingly, we discuss the reasons as to why these challenges persist in the economy.

a. Problematic regulation and governance:

With a lack of skilled human resources working as members of the cooperative, it often leads to
problematic regulation and governance in the institution. This is because members often lack
managerial and technical skills required in a cooperative. As a result, proper control mechanisms
will not be put into place, and problems regarding regulation and supervision become a great
challenge to overcome.  

b. Lack of active participation of members:

A lack of a members’ active participation makes it challenging to reach collective decisions and
implement collective action especially for cooperatives which are a voluntary association of
people to achieve the common goal of fulfilling social, economic and cultural needs. The
collective active participation is highly important in making collective decisions because it is the
critical factor in maximizing cooperatives’ yield. However, with the mass being highly unaware,
they do not have a strong grasp at understanding their roles in a cooperative which is why there
is a challenge of active participation from their side. 

c. Supervisory Capacity:

Under the Ministry of Land Management, Cooperatives and Poverty Alleviation, the Department
of Cooperatives supervises the more than 34 thousand cooperatives presently operating in the
economy. To equally and efficiently supervise by a single authority is not practical and nor is it
effective. Hence, any discrepancy that occurs can cause harm to the operation and management
of cooperatives.

3. Why even agriculture, and multipurpose could not operate as envisaged in their
initial vision and eventually end up to savings and credit function?

Agricultural cooperatives are dependent on the harvest yield by the farmer members which
exposes them to risks of production inefficiency, market risks, and environmental risks. In a
similar manner, Multipurpose cooperatives have to perform multiple activities, including those
of Dairy, saving and credit, and more, which exposes them to multiple operational risks. Hence,
Savings and Credit cooperatives are relatively more beneficial to operate when we take into
account the stability of interest rates for BFI’s as per the economy’s monetary policies.
This statement can also be argued in favor of, in the context of the Rural based cooperatives and
Urban based cooperatives, and profit generation. It is evident that the financial sector of the
Urban areas are dominated by Banks and Financial institutions, which makes it challenging for
cooperatives to earn profit, especially for cooperatives besides saving and credit ones. Contrary
to this, in the rural areas, the competition is not as fierce which gives different cooperatives the
opportunity to earn profit. Hence, for the profit motive, the agriculture and multipurpose
cooperatives end up to become savings and credit cooperatives. Furthermore, we can support this
statement by also mentioning the fact that the services and operations of Agriculture and
Multipurpose Cooperatives are much more vital and significant in the rural areas than in urban
areas, which gives cooperatives in the urban areas the motive to change the nature of business.