2.

Brief Introduction of the Industry

2.1 The Context

Co-operatives are community-focused enterprises established for general welfare

of public people especially low income group people to help their financial access
at financial institutions. Formed to offer services on a non-profit basis, co-
operatives exist in various forms, each with distinct objectives aimed at improving
financial well-being and promoting harmonious relationships within society
through various initiatives. A co-operative is a self-governing group of individuals
who voluntarily come together to address their mutual economic, social, and
cultural needs and aspirations through a collectively-owned and democratically-
governed organization. Run by producers, employees, co-operatives adhere to the
principle of 'one member, one vote.' They maintain democratic, participatory, and
transparent decision-making processes and organizational frameworks, ensuring
that their members and participants are directly accountable for their own benefit
as well as that of society as a whole. Co-operatives primarily offer financial
services to their members, accepting deposits and providing loans based on these
deposits. Co-operatives are grounded in principles of self-help, mutual aid,
personal responsibility, democratic governance, equality, fairness, and solidarity.
Members uphold ethical standards such as integrity, social accountability, and
compassion. These principles can be traced transparency, back to the Rochdale
pioneers, who established the first modern co-operative in Rochdale, England, in
1844. Over time, these principles have evolved, been refined, and reinterpreted,
with the International Co-operative Alliance's seven principles now widely
endorsed by co-operatives globally. These principles highlight democratic
management, where members possess equal voting rights irrespective of their
capital investment, fostering an environment where cooperation contributes to
building a better world. (Cuevas, 2006)

Co-operatives unite individuals in a democratic and equitable manner. Whether

the participants are consumers, staff, users, or inhabitants, co-operatives are
managed democratically. Members possess equal voting rights, regardless of the
amount of capital they invest. Co-operatives follow globally accepted principles
and work collectively to enhance international collaboration and create a better
world through collective efforts. Worldwide, co-operatives play a crucial role in
socio-economic development, contributing to sustainable development goals
(SDGs) by promoting inclusive growth, alleviating poverty, and enhancing social
cohesion. International bodies such as the International Co-operative Alliance
(ICA) and the United Nations acknowledge and endorse the co-operative model
for its capability to tackle global challenges. Co-operatives function in various
sectors, including agriculture, finance, healthcare, and housing, affecting millions
of lives globally.

At the national scale, co-operatives make substantial contributions to the economy

and societal welfare. In numerous countries, co-operatives are essential actors in
industries such as agriculture, finance, retail, and housing. Governments
frequently back co- operatives through supportive policies, financing, and
regulatory structures, acknowledging their part in fostering economic stability, job
creation, and community advancement. National co-operative federations and
associations strive to champion co-operatives, offer support services, and promote
networking and knowledge-sharing among co-operatives. (Congress-2023, 2024)

Locally, cooperatives are deeply integrated within communities, addressing

specific needs and challenges faced by their members. They offer crucial services
such as credit, housing, healthcare, and education, tailored to local circumstances.
Cooperatives cultivate a sense of community, trust, and mutual support among
members, thereby strengthening local economies and social connections. Local
cooperatives often partner with municipal governments, local businesses, and
non- profits to amplify their impact and sustainability. In essence, cooperatives,
whether on a global, national, or local scale, embody principles and practices that
promote democratic participation, economic fairness, and social responsibility. By
adhering to these values, cooperatives contribute to creating a more inclusive,
equitable, and sustainable world.
2.2 Present Situation of Co-operatives

Co-operatives have undergone substantial evolution over the past two hundred
years and persist as vital contributors to the global economy, crossing the
boundaries of socioeconomic development. These entities have adapted and
broadened their functions across multiple sectors, demonstrating their flexibility
and resilience. Originating as small-scale community efforts, cooperatives have
grown to become essential parts of national economies, consistently advocating
for economic inclusion, social fairness, and sustainable progress. Their distinctive
structure, which prioritizes democratic governance and member involvement, sets
them apart from conventional business models and highlights their lasting
significance in today's intricate economic environment.

In Nepal, co-operatives have deep cultural roots, initially manifesting as informal

community based savings and credit associations known locally as Dhukuti or
Guthi. These informal setups were crucial in nurturing a sense of community and
mutual support among participants, particularly in rural regions. The
formalization of co- operatives commenced with the enactment of the Co-
operative Act in 1960, which established a legal framework for their operation.
This was followed by subsequent legislative amendments aimed at enhancing the
regulatory environment and encouraging the expansion of co-operatives. The
formation of apex bodies like the Nepal Federation of Savings and Credit
Cooperative Unions (NEFSCUN) in 1988 marked a significant milestone in
consolidating the co-operative movement in Nepal. These advancements
underscore Nepal's dedication to embedding co-operative principles into its socio-
economic fabric.

In the modern context, co-operatives in Nepal are crucial in delivering essential

financial services to communities, especially in rural and underserved regions
where traditional banking infrastructure is limited. Credit unions and Savings and
Credit Cooperative Organizations (SACCOS) provide savings accounts, loans,
and insurance products that enhance financial inclusion. This empowers
individuals and small businesses that might otherwise be excluded from formal
financial systems, allowing them to attain economic stability and growth.

Agricultural co-operatives, in particular, play a vital role in aiding farmers by

facilitating access to markets, resources, and collective bargaining power. They
significantly contribute to improving agricultural productivity, ensuring food
security, and promoting sustainable farming practices amidst global economic
challenges. Beyond their economic contributions, cooperatives in Nepal foster
social unity and cultural growth. They back community-focused projects,
educational initiatives, and healthcare services, thereby enhancing the overall
quality of life for their members and bolstering local economies. For example,
educational cooperatives offer scholarships and learning opportunities, while
health cooperatives provide affordable medical services and insurance. These
efforts not only address urgent needs but also build long-term community
resilience. Cooperatives also play a vital role in safeguarding and promoting local
cultures and traditions, which are essential to Nepal's diverse social fabric.

However, cooperatives encounter numerous obstacles, such as intricate regulatory

frameworks, competition from commercial entities, and internal governance
problems. The regulatory landscape for cooperatives is often convoluted and
challenging to navigate, necessitating continuous adaptation to changing laws and
regulations. Furthermore, as commercial banks and financial institutions extend
their influence, cooperatives must innovate and distinguish themselves to stay
competitive. Internal governance issues, like ensuring transparency and
accountability, are also crucial for maintaining member trust and organizational
integrity. Tackling these challenges demands concerted efforts to improve
regulatory frameworks, adopt best practices in governance, and leverage
technological advancements.

Despite these hurdles, cooperatives in Nepal and around the world continue to
show resilience and adaptability. Their dedication to cooperative principles like
democratic governance, member involvement, and community-focused
development fuels their ongoing relevance and success. Global networks such as
the International Co- operative Alliance (ICA) are pivotal in promoting
collaboration, sharing knowledge, and advocating for policies that support the
cooperative movement internationally. These networks offer platforms for
cooperatives to exchange ideas, learn from each other's experiences, and tackle
shared challenges collectively. They also push for policies that foster a conducive
environment for cooperatives to flourish.

Looking ahead, cooperatives are set to significantly contribute to achieving

sustainable development goals (SDGs), aligning with global agendas for inclusive
growth, social responsibility, and environmental stewardship. By advancing
economic inclusion, nurturing social cohesion, and promoting sustainable
practices, cooperatives can address some of the most pressing global challenges.
Their distinctive model, which integrates economic activity with social objectives,
positions them as crucial players in the pursuit of a more equitable and sustainable
world. As they continue to innovate and adapt to evolving circumstances,
cooperatives will remain indispensable in building resilient communities and
fostering a sustainable future.

2.3 Challenges and opportunities of co-operatives

Challenges and opportunities are inevitable aspects of every business and

financial sector. The environment is dynamic, and change is a constant.
Organizations must adapt to the environment to ensure their long-term
sustainability. Changes can bring both positive and negative impacts to
cooperatives.

Today's cooperatives are grappling with the challenges of shrinking budgets and
continuous pressure to cut costs while dealing with a constant influx of new
regulations. Policies and plans are frequently changing. Numerous regulatory
bodies oversee cooperatives and verify their reports. Currently, there is a liquidity
crisis due to changes in government liquidity policies, which complicates matters
for banks and, consequently, impacts cooperatives directly and indirectly.
Additionally, they are under significant pressure to meet the increasingly complex
demands of real-time, digital members. Technology is playing a crucial role in
helping them address these challenges. Many institutions still attempt to integrate
legacy, paper-based processes with digital tools, creating a disjointed experience.
Some struggle because they haven't adopted a straightforward digital deposit and
account opening process. Digitalizing the customer experience and backend
processes effectively makes serving customers much simpler.

Some of the challenges and opportunities are listed below:

 Co-operatives need to shift their mindset, and outsourcing illustrates this

well. Historically, outsourcing was touted as a cost-cutting measure by
handing over projects to external providers. However, the actual
experience has been quite different. Instead of leveraging the benefits of
outsourcing, issues like complex applications, varied architectures,
inadequate data management, and flawed business processes were
offloaded.
 The Digital Revolution is another area in which co-operatives should
rethink their strategy. Members now have various channels for interacting
with their co-operatives. With choice comes competition and with the
regulatory push towards price transparency and rapid account switching,
member turnover is likely to increase. The customer's digital experience is
crucially important, often prioritizing accessibility over the specific
provider of the channel.
 The dilemma for financial institutions is evident. How can they remain
pertinent to their members and uphold their payments expertise amidst
competitors such as digital wallets, all while constructing new frameworks
that accommodate these challengers? Furthermore, due to growing
alienation from their members, financial institutions are increasingly
relinquishing control over transaction data, which will be crucial in the
future for cultivating stronger member relationships and adopting a more
member focused approach.
 Updating infrastructure is crucial for fostering innovation and prioritizing
customer centric operations in financial institutions. Several countries are
 currently implementing initiatives, supported by banks, aimed at
developing modern real-time payment frameworks that facilitate direct
bank-to-customer transactions.
 The ongoing revolution in real-time transactions is also transforming the
way consumers settle payments for products and services. Numerous
financial facing substantial declines in profitable operations because of
institutions are the rise of new competitors. These agile firms are
leveraging the infrastructures of financial institutions and capturing a
share of the market, leaving financial institutions to shoulder the costs and
manage antiquated payment systems.