Legal and Managemental Dimensions of Nepal’s Cooperative Crisis

Published: August 6, 2025

Introduction

Cooperatives in Nepal have long been an important pillar of financial inclusion and community development. Yet, as highlighted in recent reports, the sector is facing serious governance, regulatory, and financial challenges. This article reviews the current state of Nepal’s cooperative institutions from both a legal and managerial perspective, offering insights relevant to policymakers, investors, and members.

Scale and Reach of Cooperatives

According to the taskforce led by Dr. Jayakant Raut, Nepal has 31,373 registered cooperatives with over 7.38 million members. These institutions collectively hold:

• NPR 94.15 billion in share capital
• NPR 478.03 billion in savings mobilization
• NPR 426.35 billion in loan investment

Such figures underscore the systemic importance of the cooperative sector to Nepal’s broader financial system.

Regulatory Framework and Gaps

The Cooperative Act 2074 (2017) was intended to streamline the sector, yet structural problems remain. The Constitution divides regulatory power among the federal, provincial, and local governments, but unclear jurisdiction has led to overlapping responsibilities and weak enforcement.

At the local level, nearly 23,000 cooperatives fall under municipal oversight. However, municipalities often lack the legal capacity, human resources, and expertise to regulate effectively.

Key Challenges

1. Liquidity Pressure Post-COVID: During the pandemic, relaxed lending practices created repayment risks. Rising global interest rates and inflation later drew deposits away to commercial banks, creating liquidity stress for cooperatives.
2. Absence of a Stabilization Mechanism: Unlike banks, cooperatives lack a stabilization fund or lender-of-last-resort facility. This has amplified panic and mistrust during crises.
3. Limited Autonomy of the Regulator: The newly established National Cooperative Regulatory Authority is also not fully independent, restricting its ability to oversee and intervene effectively.
4. Weak Governance Structures: While law mandates oversight committees with senior judges or officials, but for the process of restructuring and liquidation requires professional expertise which it lacks 

Path Forward

For cooperatives to regain credibility and stability, the following steps are essential:

• Legal clarity on federal, provincial, and local jurisdiction.
• Strengthening local capacity through training and resources.
• Empowering the regulator with operational autonomy and adequate resources.
• Professionalizing governance by appointing experts rather than politically influenced committees.
• Creating a stabilization mechanism to address liquidity shocks.

Conclusion

Nepal’s cooperative sector is at a crossroads. Its scale and financial influence demand stronger governance, legal clarity, and crisis-management frameworks. Unless these reforms are pursued with urgency, the sector risks further instability. For stakeholders, whether members, depositors, or policymakers, the lesson is clear: robust legal structures and professional management are indispensable for the sector’s survival and growth.

This article is intended for informational purposes only and does not constitute legal advice. For tailored guidance on cooperative law and governance in Nepal, please contact us.