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1.1 Background of the Study

Nepal is youngest republican country in the world. By the political change in the country, many things are being used and practiced in this Himalayan country. In Nepal, the most of the people are still dependent on agriculture for securing livelihood. The livelihoods adopted by the rural communities are derived from the traditional economic activities such as agro-based and livestock based. Most rural and agriculture households rely on multiple income sources and adopt a wide range of livelihood strategies for food securing due to inadequate income from a single occupation.

Federal Democratic Republic of Nepal is a landlocked country in South Asia. It is bordered by China to the north and India to the south, east and west. Nepal is small, landlocked and agricultural country lying between two fast growing and economically strong countries India and China which is suffered from many economic problems such as mass poverty, high unemployment, high population growth rate, low per capita income, income inequality, high dependency on agriculture, high dependency on Indian economy etc. These factors are responsible for the slow economic growth rate. The main goal of developing countries like Nepal is to attain high economic growth rate, reduction of income inequality and poverty and to improve the living standard of the people. Though various institutions are established to uplift the economic development. Cooperative is one of such institutions, which has become suitable and popular business entity for the upliftment of economic development.

As per the revised estimate, Nepal‟s real GDP was estimated to grow by 5.0 percent in FY 2014/15. Such growth rate, however, is estimated to stagnate at 3.0 percent at basic price against the growth rate of 2.1 percent in the previous fiscal year. While classifying GDP into agriculture and non-agriculture sector as per industrial classification, the share of agriculture sector to GDP is in declining trend while that of non-agriculture is on the rise. Contribution of agriculture sector to real GDP which was 36.6 percent in FY 2000/01 has dropped to 33.1 percent in current fiscal year while that of non-agriculture sector has gone up from 63.4 percent to 66.9 percent.


Inflation rate, which was 8.9 percent in first eight months of FY 2013/14, has rested at 7 percent during the same period of current fiscal year.

It is necessary to achieve and sustainable economic growth rate for the country to graduate from its current status of a least developed country to developing country by 2022. In a situation where average annual growth rate for the past 10 years has been mere 4.1 percent, it poses a tough challenge to the country to achieve annual growth rate of 7-8 percent for graduating to the developing country. (MoF, Economic Survey, 2015)

A Cooperative is a voluntary organization of persons with limited means of safe guard of their common needs and interest. “Unity in diversity is the main motto of cooperative societies”. The philosophy behind cooperative movement is “all for each and each for all”. A cooperative is defined by the international cooperative alliance‟s statement on the cooperative identity as an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and inspiration through jointly owned and democratically controlled enterprises. It is a business organization owned and operated by a group of individuals for their mutual benefits. A cooperative may also be defined as a business owned and controlled equally by the people who use its services or who at it. Cooperative means working together for the common benefit that have similar desires, wants and motives. A Cooperative usually uplift the living standard of lower income people. Cooperative development may be the backbone for the development of developing countries (NRB, 2012).

A cooperative is a form of organization engaged in economic activities and carries out management function such as planning, organizing, controlling and evaluation. Furthermore, cooperative are business organization operated by farmers, workers, handicraft workers, porters, landless poor people, unemployed, marginalized people and social workers for the economic and socio-cultural development of their members. Development of competition of small producers and service users through cooperative is indispensable in Nepal.

The word “Co-operative” is said to have been derived from the latin word “Cooperate” which means working together for some common purpose. The cooperative is comprised of two terms „Co‟ and „Operative‟. „Co‟ stands for together and „Operative‟ stands for working. In general, cooperative means living, thinking


and working together for mutual benefits of the member engaged in the business organization. It is technical sense and it also denoted the special method of doing business using the skills and knowledge of members and investing capital to develop their business as an industry and selling their production of goods and services. Cooperative is a business entity which is gained, capitalized and managed by of and for its members, patrons furnishing and\or making at cost of goods and\or service to patrons.

A cooperative (“Coop”) or Cooperative (“Co-op”) is an autonomous association of people who voluntarily cooperate for their mutual social, economic and cultural benefit. Cooperative is non-profit community organization and businesses that are owned and managed by the people who use its services or by the people who work there or by the people who live there (a housing cooperative), hybrids such as worker cooperatives that are also consumer cooperatives or credit unions, multi-stakeholder cooperatives such as those that brings together civil society and local actors to deliver community needs and second and third tier cooperative whose members are other cooperatives (Wikipedia, 2014).

A cooperative is a voluntary organization for a joint organization of some work on equal terms and with common objectives. This form of organization has been growing popularly in the sphere of economic activities particularly among the economically weak member of community who by definition cannot protect their interest on an individual basis.

Cooperative can be defined as a “jointly owned enterprise engaging in the production or distribution of goods or the supplying of services, operated by its members for their mutual benefit. It is typically organized by consumers or farmers. Cooperatives have social goals which they aim to accomplish by investing a proportion of trading profit back into their communities. A cooperative is a legal entity owned and democratically controlled by its members and members often have a close association with the enterprises as producer or consumers of its products or services or as its employees (Wikipedia, 2014).

The objectives of cooperative are generally related to the welfare of members. It always tries to develop the economic, social and mental empowerment of members. Cooperatives are based on the value of self-help, mutual help, self-responsibility,


democracy, equality and solidarity value of honesty, owner, social responsibility and caring of others. Cooperatives are community based, rooted in democracy, flexible and have participatory involvement which makes them well suited for economic development. The process of developing and promoting community spirit, identity and social organization as cooperatives play an important role in poverty reduction, facilitating job creation, economic growth and social development. In tradition of their founders, cooperative members believe in the ethical values of honesty, openness, social responsibility and caring of others.

Badal (2007) claims that cooperative is form which is owned, controlled and operated by a group of users for their own benefit. Each member contributes equity capital and shares in the control of the firm on the basis of one member, one vote principle and not in proportion to his or her equity contribution (Sahakari Siddhanta Ra Prayog, 2007).

The Rochdale Society of Equitable Pioneer is usually considered the first successful cooperative enterprises which founded in 1844. It is used as a model for modern co-ops, following the „Rochdale Principles‟. A group of 28 weavers and other artisans in Rochdale England and set up the society to open store selling food items they couldn‟t otherwise afford. There were over 1000 cooperative societies in the United Kingdom within 10 years.

The Rochdale Principles are a set of ideals for the cooperating in the operation of cooperative‟s activities. They were first set act by the Rochdale Society of Equitable Pioneers in Rochdale, England, in 1844 and have formed the basis for the principles on which cooperative operate in the worldwide in this day. The Rochdale principles have been focused on the study in cooperative economics. The original Rochdale principles were officially adopted by the International Cooperative Alliance (ICA). According to the 1996 ICA revision, the main or original Rochdale Principles of Cooperatives are as follows:

1.      Voluntary and open membership

2.      Democratic member control

3.      Member economic participation

4.      Autonomy and independency


5.      Education, training and information

6.      Cooperation among cooperatives

7.      Concern for community

Cooperative Principles are principles on which cooperative societies work. Some principles are called “Moral Principles” in the sense that they are statement of universal basic values which are a guide to human conduct.

Cooperative Principles are based on certain moral values or certain ideals. The cooperative principles simply describe the essential and characteristic features of an organization known as the cooperative organization. In other words, the cooperative principles define the cooperative form of organization. In addition, cooperative principles explain the basis of working of cooperative society in the specific sense.

“ An association of persons who have voluntarily joined together to achieve common end through the formation of democratically controlled business organization, making equitable contribution to the capital required and accepting a fair share of the risk and benefits of the undertaking in which member actively participate” (ILO, 1996).

Acharya (2006) stated that cooperative has been playing pivotal role in many developed and developing countries in production, processing, marketing and caring not only their members but also making greater impact to their communities as a whole.

MoF (2009/10) stated that cooperative policy of Nepal revealed that cooperative system has great potentiality to provide impacts to economic and social development efforts by bringing change in the living standard of the general public. This is only possible by bringing the suitable change in the society through establishing cooperatives. People can achieve self dependency and self responsibility by utilizing their limited sources and skills being involved in cooperative. Cooperative can contribute largely in poverty alleviation being involved in employment generation activities. Various directives and standard for the registration and continuation of cooperative institution have been issued for the cooperative department through which number of activities is being carried out for the quality growth and efficiency.

After the restoration of democracy in 1990, New Cooperative Act, 1991 and New Cooperative Rules, 1992 are promulgated providing autonomy to the cooperative


sector in real sense. There emerged conclusion in registering new cooperatives and managing old ones in terms of new provision. Most of the cooperatives registered were agriculture in types with the hope of selling chemical fertilizers supplied by the government imported from different countries. There are so many types of cooperative in practice in Nepal. The experience of Grameen Bank in Bangladesh is particularly important because it focus on the rural poor, the landless and other small artisans to help in their credit operation through small group operation.

The International Cooperative Alliance was the first international association formed by the cooperative movement. It includes the world council of credit unions. A second organization was formed later in Germany, the International Raiffeisen Union. The National Cooperative Business Association (NCBA) serves as the sector‟s oldest national membership association in United States. In 2012, the turnover of the largest 300 cooperatives in the world reaches $ 2.2 trillion.

Cooperative may take the form of companies limited by its shares or by guarantee, partnerships or unincorporated association. In USA, cooperatives are often organized as non-capital stock corporations under state specific cooperative laws. Cooperative share their earning with the membership as dividends which are divided among as patronage, instead of according to the value of their capital shareholdings. Cooperatives are dedicated to the values of openness, social responsibility and caring of others. Membership is open which means anyone who satisfies certain non-discriminatory conditions may join. In the cooperative, economic benefits are distributed proportionally to each member‟s level of participation by a dividend on sales or purchases rather than according to capital invested in the business entity. The United Nations has declared 2012 to be the International Year of Cooperatives (IYC). Co-op city in the Bronx, New York City is the largest cooperative housing development in the world with 55,000 people. The two largest supermarkets chains in Switzerland Migros and coop are also cooperatives. The third largest , Raiffeisen is a cooperative as well. In 2007, the top 300 largest cooperatives were listed by the International Cooperative Alliance. 80% were involved in either agriculture, finance or retail and more than half were in the United States, Italy and France (Wikipedia, 2014).


The cooperatives registered in the country in terms of broad divisions are:

1.      Multipurpose Cooperative

2.      Single Purpose Cooperative

3.      Producers‟ Cooperative

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