Economic Cycle of Cooperatives in Nepal - Time to Control -BP BADAL Abstract Cooperatives are the vehicle of development in present transitional Nepal. However, not all those cooperatives are functioning properly and it seems their numbers are also very high. So to raise the awareness of its non productive development with experts, development practiceners and socio- economic scientists, this research article will be helpful to analyses on operation, collection, bad debts, memberships liquidity crisis and other important issues within a cooperative. The adopted methodology was that researcher has visited the executives of twenty cooperatives in Kathmandu Valley and collected the qualitative data to analyses the issues. Because of the time frame researcher has to minimize the literature review even though some international perspectives are included. Key words: Operation, Collection, Bad debts, Membership, Liquidity crisis Background Cooperatives are peoples socio-economic organization established with the goal to improve the living standard of society. It is a voluntary association of people with the equal equity of members or participants to make decisions with democratic norms and values in operation. It is neither economic nor social organization but it is hybrid of both natures. Non organized informal organizations or indigenous institutions like, Guthi of Newars, Dhikuri of the Thakalis, Posang of the Syangtan, Mirchang of Marphali Thakali, Bheja of the Magars, Choho of Tamang, Tho, or Gola or Rodhi of the Gurungs, parma or sarsapat of Chhetriya, Khyal of the Tharus and Chhattis Mauja irrigation system of Tharus etc were the original form of contemporary cooperatives of Nepal. (Bhattachan, 2007) Such organizations have long history, which cannot attribute completely where as in 2010 BS Government established the department of Cooperatives. Similarly, in 2013 BS Government approved the bill to start register and operation of cooperatives. Because of this decision, Bakhan cooperative of Chitwan was started in 2013/12/20 as a pioneer of cooperatives and a remarkable turning point of contemporary cooperative movement (Badal, 2067). Since then cooperative movement is continuously developing in Nepal. Internationally the modern cooperative originated in Europe and spread to other industrializing countries during the late 19th century as a self-help method to counter extreme conditions of poverty. However, one development that probably had the greatest singular impact on determining agricultural cooperatives’ unique operating principles was the formation in 1844 of the Rochdale Society of Equitable Pioneers, Ltd. This was a consumer cooperative established in Rochdale, England, by a group of workers representing various trades who formulated a set of basic operating rules based on a two-year study of cooperatives, including some that were not successful. The cooperative’s objectives were to address members’ needs for better housing, employment, food, education and other social requirements. Another important development regarding cooperatives serving as credit or banking institutions was the establishment of the first savings and credit cooperative in 1864 by Friedrich Wilhelm Raiffeisen in Germany. The objective of the Raiffeisen Bank was to provide savings and credit services in urban and rural areas based on the idea of “self-help”. Raiffeisen is generally given credit for developing the rules that govern present-day credit unions. The development of cooperatives over time has been shaped by many factors and influences (Ortmann & King, 2007). Thus since 19th century cooperatives had existed in the world. Objectives: As the government has identified it as a strong pillar of economic development, its productivity is declining the most important aspect is that until now peoples perception is positive. If people take it as NGOs, its trustworthiness will be zero. Its validity and reliability will sink then that can create social communal crimes than economic down turn. Its social cost will be more dangerous than measurable quantitative economic cost. The academicians, sociologists, researchers and economists have to give more attention on its research and development to guide the good future. Prominent economists have to have detail investigations and forecast for the future course of actions. Cooperative ministry, board and departments have to have scientific coordination to formulate new people friendly environment and different policies. Banks should be discouraged to invest in individual savings and micro credit because it is entirely related with cooperatives. Government has to encourage cooperatives also to merge and amalgamation each other to compete the bank and widen the area of operation and services. (Badal B. , 2013) the specific objectives of the study: a. To raise the academic awareness on economic productivity of current cooperatives of Nepal b. To generate the measures of the sustainability of saving and credit cooperatives Review of Literature “Microfinance has proved its value, in many countries, as a weapon against poverty and hunger. It can change peoples lives for the better – especially the lives of those who need it most. A small loan, a savings account, an affordable way to send a cheque back home can make all the difference to a poor or low-income family. With access to microfinance, they can earn more, build up assets and better protect themselves against unexpected setbacks and losses. They can move beyond day-to-day survival towards planning for the future. They can invest in better nutrition, housing, health and education for their children. In short, they can break the vicious cycle of poverty. Microfinance is not charity. It is a way to extend the same rights and services to low-income households that are available to everyone else. It is recognition that poor people are the solution, not the problem. It is a way to build on their ideas, energy and vision. It is a way to grow productive enterprises, and so allow communities to prosper.” -Kofi Annan, UN Secretary General It was systematically legalized in 2016 BS but was not able to flourish in closed party less Panchayeti regime. After the advent of democracy in 2046, the whim of peoples choice of freedom to open peoples organization it began to take its shape so consequently the cooperative act 2048 was enacted. The open social democratic environment was the best choice of socialist as well as democrats to start cooperatives. It is a scientific socio economic development tool of either communists or democrats. In aggregation, an economic organization or association to unite all political ideologies in international arena as a highway between capitalism and socialism is a cooperative. (Badal, 2067) So at present more than 25000, cooperatives and 50000 direct jobs with tangible amount of investment are injected through cooperatives in national economy. Economic public policy has addressed it as a third pillar of Nepalese economy. This conducive environment has encouraged a pool of people to start so new cooperatives are mushrooming day by day extensively. This sector has significant role to voluminize the crippling transitional economy of Nepal. Its long rooted history shows its dynamism has grown only after 2048 and at present, it shows it is grooming and operating in boom mode of economic cycle. (Badal B. , 2013). Thus, socio economists have to consider the scenario. In every urbanizing modern settlement or Nepalese tiny market, we can notice numbers of cooperatives. Rotating credit association such as Dhikuris are becoming common in different groups of people in Nepal among them cooperatives and similar organizations have performed different types roles among the various groups of people as instrument of capital, credit, saving, investment and mutual support or exchange. (Chhetri, 2007) I have personally witnessed four cooperatives in a house in Chabel and Banepa. These areas are full of different financial institutions, banks and cooperatives as a vegetable mandi of Kalimati. The numbers are creating great challenging problems or difficult headache of central bank to control, monitor and supervise the saving and credit cooperatives. Nepal Rastra Bank must identify the need assessment of cooperatives otherwise; it can hinder the banking sector seriously. The claver bankers have already identified the importance of small savings and micro credit so they are also targeting grass roots modifying lengthy loan and collateral processes. Normally banks provide the loan within seven days but within two days, they complete the process to sanction. Furthermore, banks are more professional than cooperatives. It seems that cooperatives, finance companies and bank all of them are directly focused on weak or micro individual saving and credit, thus it has a cut throat competition in financial sector. In battle among fishes, big fish eats small fish. Cooperatives may lose (Badal B. , 2013). It shows that the cooperatives are the organizations of poor grass root individuals but the sophisticated professional or skillful banks are very strong and they have the unjustifiable competition. In the battle of big banks and poor cooperatives, certainly cooperatives have to die. Over the last 150 years or so, two socio-economic systems have dominated the world: capitalism and communism. Capitalism is synonymous with individual ownership and private enterprise, and communism is synonymous with state ownership and public enterprise. All of us are familiar with both systems. There is a third model; it is called ‘the third way’ or the cooperative economy, which offers an alternative future, one that, potentially, should avoid the excesses and disasters of both capitalism and communism. Free market fundamentalist theories probably make some sense in the economics textbooks from which they came. In the real world, protectionism and state patronage is the path to development even today. The fight over European and U.S. agricultural subsidies in the WTO and the huge role of the publicly financed Pentagon system within the U.S. economy are the two most obvious examples of this maxim. The microfinance project is dangerous therefore not merely, because it is unproven. It is dangerous because it is a free-market myth. The idea that private entrepreneurs can lead the way out of poverty and toward development sounds very good to those who have no sense of history, or to those who serve the interest of large private scale actors including transnational capital. Those who believe in the mythological power of microfinance have no reason to consider meaningful paths out of poverty. These paths that would certainly begin by undoing some of the damage that has been done in the last three decades of market fundamentalist policies, and also including reinvesting in national industrialization policies, as well as in healthcare, education, housing and infrastructure. Until we as a global community of people committed to human rights and human dignity for all can overcome our ideologies and learn the lessons of history, there can be no meaningful reduction of poverty in the world, With our without microfinance (Karlyle, 2005). Thus, the sector is in between market and state for the welfare of the people. International Cooperative Principles The International Cooperative Alliance defines a cooperative as follows as cited by (Badal K. , 2067) “A cooperative is an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly owned and democratically controlled enterprise.” There are seven internationally recognized principles of cooperatives: 1. Voluntary and open membership: Cooperatives are voluntary organizations, open to all persons able to use their services and willing to accept the responsibilities of membership, without gender, social, racial, political or religious discrimination. 2. Democratic control by members: Cooperatives are democratic organizations controlled by their members, who actively participate in setting their policies and making decisions. Men and women serving as elected representatives have equal voting rights, based on one member one vote. 3. Member economic participation: Members contribute equitably to, and democratically control, the capital of their cooperative. At least part of that capital is the common property of the cooperative. Members usually receive limited compensation, if any, on capital subscribed as a condition of membership. Members allocate surpluses for any or all of the following purposes: developing the cooperative, benefiting the embers in proportion to their transactions with the cooperative, and supporting other activities approved by the members. 4. Autonomy and independence: Although cooperatives may deal with other organizations, including governments, or raise capital from external sources, they do so on terms that ensure democratic control by their members and maintain their cooperative autonomy. 5. Education, training and information: Cooperatives provide education and training for their members, elected representatives, managers and employees, so that they can contribute effectively to the development of their cooperatives. They also inform the public about the nature and benefits of cooperation. 6. Cooperation among cooperatives: Cooperatives serve their members most effectively and strengthen the cooperative movement by working together through local, regional, national and international structures. 7. Concern for the community: While focusing on member’s needs, cooperatives also work for the development of their communities through policies acceptable to their members. Former United Nations Secretary-General Boutros Boutros-Ghali, in his 1994 Report to the General Assembly said, “Cooperative enterprises provide the organizational means whereby a significant proportion of humanity is able to take into its own hands the tasks of creating productive employment, overcoming poverty and achieving social integration.” (Karlyle, 2005) As cooperatives have to die, it seems there is not any area remaining to develop and explore that every sector of society has already captured or associated by banks or cooperatives. There is not any space to start new cooperatives. It might be the boom stage of cooperatives economic fluctuating cycle. It is climax because everyday we hear news of bankrupting or malfunction of cooperatives. It will go down as in recession that can lead serious socio economic disorder in society (Dahal, 2005). Now the time has come to make detrimental decision to drive in new dimension. The political transition has not being able to direct future investment and economy so it is difficult to enter the huge domestic as well as foreign investment in productive sector. Investments in big business enterprises are decreasing because of banking priorities are on grass root individual saving and credit. Due to the political disorder, government cannot assure or develop the peoples confidence on huge huge investment to start big business enterprises and foreign investment. In other hand, financing sources like banks and financial institutions are focusing on micro level but ignoring the big investments. Therefore, neither government nor banks are investing or creating the environment for big enterprises. The result is the economy is suffering from lack of investment that declines the productivity, employment, income, consumption, saving and at last reducing the investment again. Cooperatives cannot have access to invest in such industries. The bitter fact of load shedding more than 16 hours a day and over politicalization on every socio economic issues have also discouraging the big investments and so on (Badal B. , 2013). It pictures the contemporary Nepal and cooperatives can flourish in people but not on other infrastructure or electricity. Theoretical Frame Work In Great Britain one of the main thinkers was without any doubt the philanthropist Robert Owen (1771-1858), known by some as the father of cooperation. His view was simple. He thought it would be more economical to deal with the poor in groups rather than individually; hence his proposal for what he himself called villages of cooperation. He first conceived these villages as a solution to the problem of unemployment and misery. He wanted to help the poorest villagers to acquire communal property and to take up work - especially farm work - which would save them from despair. However, gradually his concept grew; these villages of cooperation became, in his view, the ideal type of society towards which he wanted to push humanity. The basis for Owens’s doctrine was the suppression of commercial and industrial gain in favor of a “fair price” by cutting out the intermediaries between production and consumption. The source of finance for these villages of cooperation was imagined to be rich philanthropists such as him who would make their businesses available to the villages of cooperation. Dr William King (1786-1865) gave a more practical direction to the utopian ideas of Owen. Like Owen, he had in mind a self-sufficient community in which the workers would produce according to their needs. However, contrary to Owen, he favored the involvement of the members with the outside world, in keeping with the earlier philanthropic funding concept. His idea was to encourage the establishment of shops by and for the working classes. Collecting regular payments from the workers would guarantee the funding of these shops (Tchami, 2007). Thus, Robert Owen is regarded as the father of modern Cooperatives. In France, Charles Fourier (1772-1837) was one of the first to propose an alternative form of cooperation, i.e. a community organization he calls “phalanstery”. The idea was to fight poverty with growth of production; for example by bringing together the different members of an area so that they could collection their resources, especially their land, and live together in the phalanstery. Charles Fourier is referring here to producer cooperatives that market directly or get used to and market the products or services of their members (Tchami, 2007). In Germany, Hermann Schulze- Delitzsch (1808-1883) is considered the pioneer of municipal cooperatives. He made himself the follower of municipal credit cooperatives after working out that lack of capital was a major problem for people living in towns. His cooperatives were based on self-help in its purest form; that means no outside intervention at all, not even from the State. For Schulze-Delitzsch, the cooperative had a purely economic role to play in raising revenue. His other principles were self-responsibility, equal rights for each individual within the cooperative group, joint responsibility for debts by the group and finally democratic self-control. Friedrich Wilhelm Raiffeisen (1818-1888) for his part is regarded in Germany as the pioneer of rural cooperatives. His model for credit cooperatives differs from that of Schulze-Delitzsch in the sense that the principle of self-help was not applied in absolute terms the building up of a capital base was in no way deemed necessary and that the reserves were distributed to another association in the event of dissolution. Raiffeisen’s principles are, among others: the advancement of the members, as much religious and moral as material, a limit on the number of group members based on the size of a village and the unlimited mutual responsibility of the members (Tchami, 2007). Thus, the experiments of Schulze-Delitzsch and Friedrich Wilhelm Raiffeisen in the cooperative field have contributed greatly to the fact that Germany is thought of as the cradle of credit unions. We must mention the importance of the work of the twenty-eight Rochdale workers in the formation and observation of the cooperative principles. In contrast to the other principles or expressions of principles which were the work of individuals, the Rochdale Pioneers, composed of twenty-eight workers, were the authors of the first group approach cooperative principles history. That is why they are regarded as the pioneers of cooperative principles, or even of the cooperative movement itself. It all began in 1843 after fruitless pay talks. When they did not get the rise they had hoped for, the Rochdale Pioneers without knowing exactly what they were going to do, decide to set up a fighting fund to raise start-up capital for a yet undetermined plan. After mature reflection and influenced by Owen, they opted for the cooperative solution. On October 24 1844, they registered the Rochdale Equitable Pioneers Society, a cooperative retail society. This meant that its members could get supplies of food and other goods at the lowest cost. The Rochdale cooperative thus became a model not only for all consumer cooperatives but also for all cooperatives around the world. To this day, the Rochdale principles dominate the world cooperative movement. (Tchami, 2007). Thus, the present article is theoretically framed on principles of Rochdale cooperatives directed by father of present cooperatives - Robert Owen. Methodology and Analysis Methodology is a process to conduct research. To investigate the research objectives the researcher has visited and collected the information of last five years of 20 cooperatives of Kathmandu valley. According as the information and investigation, they are suffering from the following problems on ranking basis. Researcher has developed a questionnaire with specifying four problematic areas of cooperatives. Those problematic areas of saving and credit cooperatives are a. Operational management, b. Collection, c. Bad debts d. Memberships and e. Liquidity crises a. Operational Management To run a saving and credit cooperative is a challenging job for the people who do not have complete managerial skills and knowledge. Most of the members are involved in their particular business and they cannot provide proper time on managerial issues. To run it effectively there must be a good socio manager who can manage social as well economic issues to maximize the wealth. Every cooperative must have good planning, good goal setting, strategies, staffing, motivating, marketing, controlling, leading and implementation. Almost all the cooperatives lack the operational management skills. b. Collection Now days, it is a good fashion to hire beautiful very young girls as a collectors to send them in the counter of members that with a motto of luring the young depositor. So almost all the cooperatives in urban area have appointed collectors but it has its own bad consequences. They cannot work and understand the situation. So many collectors have misused the collections too. Cooperatives send staffs on door-to-door collection of cash even though they do not have capacity to hire the staff. The cutthroat competition is seemed in cooperative’s market. It is difficult to find potential savers on regular basis again; it has to grow in geometric progression. This slow sluggish development cannot recover the operational costs. c. Bad debts The collection and other savings must be invested to earn profit. If they do not have good opportunities to invest that then they cannot survive. If they invest it in wrong area it will create serious bad debts that will hinder the development of cooperatives. Furthermore according as cooperative’s act and rule they cannot invest to the big business enterprises and other commercial enterprises. They are allowed to collect and invest within the member circle. Socially it is very difficult to return the invested fund in social sector as in family affairs. Most of them have invested their fund in social issues in the name of business and so on. Here neither member nor cooperatives are responsible but finally cooperatives have to suffer if a member becomes insolvent. Normally bad debts are created by the investments on family affairs. d. Memberships As cooperatives are open for every one the trend is showing that people save or invest in a developed and sound cooperatives but not with the low income groups. Ninety percent of urban families are involved in each cooperative so now it is too much. No one can get any new virgin member. A member cannot invest or be a member of other cooperatives but we have noticed that a person is involved in many cooperatives. Now days it is very difficult to expand the membership in urban cooperatives so it is economically at saturation apex or climax point that no one can expand it. Without new membership it will not grow so all the cooperatives have designed various marketing scheme to attract the members as customers. It seems boom stage of economic cycle of cooperatives. e. Liquidity crisis None of cooperatives has sufficient amount of cash in their counter for day-to-day transactions but some advanced cooperatives have it even though they do not have any liquidity management strategies for profitability. If suddenly, they get opportunity to invest in good place most of the cooperatives, have to manage with many other different sectors. Other cooperatives have to work a lot to manage the cash on the time of demand so they have to miss the good opportunities of good investment projects. f. Miscellaneous As a social networking site user the researcher have posted on the burning problems within cooperatives that some respondents have responded that: Poor cooperative education, poor control and supervisory role of cooperative boards and divisions and associations and so on. Conclusion From this study almost all, the cooperatives are suffering from different socio economic disease. As it is a field of crops, suffering just before harvesting may lose more. If we cure it at this moment of time diagnosing the sickness with the wonderful hands of PhD and experts, it will be the good development model of economics through Nepal. It will be Nepalese development model through cooperatives. In this great cooperative movement, there is not any academic involvement to highlight the sector in new dimensions, horizons and ideas rather not even to provide a prescription pill to cure the epidemic. Government must make a body to study is all dimensions with doctors and experts from cooperatives study, rural development studies, economics, and so on. Those socio-economic scientists must study the sector to formulate new policies and mechanisms of cooperatives’ industry for upcoming future of beautiful federal Nepal. There are some issues must be addressed as recommendations and advise to the stake holders that there should not more than one saving and credit cooperatives fifty to hundred families in a ward. All the cooperatives must have a manager having at least bachelor degree with fixing his/her duties, responsibilities and salary at the time of registration. Cooperatives must provide home banking facilities to the members. They must have operation plans, collection plans, regulation against bad debts and liquidity management policies. Similarly cooperative division office are lacking human and other resources to control, supervise and monitor the cooperatives so they must be equipped with legal and sources to take a move. Those authorities and capacities must be checked and balanced with different layers of cooperative’s associations around the country. The documentation and registration process is very lengthy that none of them read it they just sign it even though it has supplied good information to operate and start a cooperative. The merging and amalgamation of cooperatives in a common area are immensely recommended. References Badal, B. (2013, February 1). Give A Boost to the Cooperatives. The Rising Nepal , p. 4. Badal, K. (2067). Chinko Arth Rajniti ra Sahakaari. Ktm: Rishi Badal. Badal, K. (2067). Sahakri Sidaanta ra Prayog. Kathmandu: Sahakaari Sahayog Samuha. Bhattachan, Y. K. (2007). Democrscies in the indigenous organizations of Nepal. In B. N. Koirala, A. Khada, & R. Khadka, Democratic Indigenous Practices of Nepal (pp. 7-13). Kathmandu: Nepal Center for Creative Research. Chhetri, R. B. (2007). Rotating Credit Associations in Nepal: Dhikuri as Capital, Credit, Saving and Investment. In B. N. Koirala, A. Khadka, & R. Khadka, Democratic Indigenous Practices of Nepal (pp. 138-153). Kathmandu: Nepal Centre for Creative Research. Dahal, R. (2005). Rural Development Politics in Nepal. Ktm: Dikshanta Pustak Bhandar. Gautam, T. (2065). Perspectives on Development. ktm: Bidhyarthi Pustak Bhandar. Karlyle, J. (2005). A cooperative Economy-what might it look like ? Hobart conference: Community, Economy and the Environment (pp. 1-10). Tasmania: Exploring Tasmania’s Future. Ortmann, G., & King, R. (2007). Agricultural Cooperatives I: History, Theory and Problems. Agrekon, Vol 46, No 1 (March 2007) , 40-70. Tchami, G. (2007). Handbook on Cooperatives for use byworkers Organization. Geneva: International Labour Office
Posted on: Sat, 01 Feb 2014 05:50:59 +0000
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