CHAPTER 6

CO-OPERATIVE ORGANIZATION/SOCIETY
Unit Objectives:
After completion, students are expected to know the following:

 Concept of Co-operative Organization

 Features/Characteristics of Co-operative Organization
 Kinds/Forms/Types of Co-operative Organization
 Role /Importance of Co-operatives in Developing Countries
 Registration of Co-operatives in Nepal
 National Co-operative Development Board: Formation and Functions

CONCEPT OF CO-OPERATIVE ORGANIZATION

Meaning and Concept
Co-operative organization is the form of organization where in persons voluntarily associate together as
business being a basis of equality for promotion of economic interest of themselves. It is a voluntary
association of persons with same interest. It is guided by service motive. It is established for economical and
social development of weaker section of the society. It tries to solve similar problems. In all form of
business organizations, the objective of owner is to make profit. But its objective is to provide services. Its
motto is “one for all and all for one”. It means the persons involved in co-operative organization equally
share their joys and sorrows. It helps through mental support too. It can be defined as voluntary association
of person usually of limited means forming together in equal basis for promotion of certain economic or
business interest. Cooperative society means an organization established to provide services to members and
community rather than earn profit. The basic principle for such organization is mutual help. In Nepal,
cooperative societies are registered under Cooperative Act, 2048 BS.

After the Industrial Revolution in England, an industrialist Robert Owen established a consumer co-
operative society named “Rochadale Society of Equitable Pioneer” on 24th October in 1844AD. It was with
a view to save people from economic exploitation and create an ideal society on the basis of mutual help and
cooperation. It was the first co-operative in the world. Thereafter, co-operative was developed in Germany,
Italy, France, and Japan.

According to Henry Calvert, co-operative is form of organization is one “wherein persons voluntarily
associate together as human beings on the basis of equity for promotion of economic interests for
themselves.”

According to Prof. Seligman, a cooperative society is “in its technical sense means the abandonment of
competition in distribution and production and elimination of the middlemen of all kinds.”

According to Cooperative Act, 2048 of Nepal, “a cooperative society is constituted in order to provide
services and facilities for the economic and social development of its members.”

From the above meaning and definition, it can be concluded that a cooperative society is an association of
low income people who join hands together through mutual help and cooperation for uplifting their
economic and over all condition.

FEATURES OF CO-OPERATIVE ORGANIZATION

1. Voluntary Organization
A co-operative society is a voluntary organization established by those people who want to improve their
individual economic condition. People having common interest can join to established a co-operative
society. They can also live the organization as an when they desire.
1
2. Equality
In a co-operative society all the members are equal. Every member has equal voting right and right to
participate in the management and other activities of the co-operative.

3. Separate Legal Entity

Co-operative organization is established under co-operative act, and it has separate and distinct legal entity.
It can buy and sell properties and sign contracts with others in its own name like an individual.

4. Neutrality
The membership to the cooperative society is open to all members of the society irrespective of their
religions, castes, political beliefs, colour, etc. There is no discrimination of its members in any matter.
Person having common interest can be its member by purchasing minimum number of shares.

5. Democratic Management
A co-operative society is based on democratic system. The members elect the Board of Directors for the
management of co-operative. A member has one voting right. Major decisions are taken on the basis of
majority of votes.

6. Service motive:
Co-operative society is established with a view to provide services rather than to earn profit. It provides
different services like loan at low rate of interest, quality goods at reasonable price, warehousing, creation of
market, and organizing trainings. It is focused on providing services to its members for their benefit and
comfortable life.

7. Mutual Help (Group Effort)

A co-operative is established with the felling of mutual help and cooperation among its member. Each for all
and all for each is the main philosophy of a co-operative. This principle helps to develop efficiency among
the members to face competition in the market. It also brings all the co-operative members closer to each
other and develops good relationship among them.

8. Distribution of Surplus (Disposal of Surplus)

The primary objective of co-operative society is not to earn profit. Although being a business organization, it
earns some amount of profit. Whatever profit is earn they are not distributed among the shareholder. As per
co-operative rule only minimum amount of profit is distributed among the member s and rest amount is
transferred to development fund.

6. Cash Trading (Transactions)

Cooperative societies undertake business transactions on cash basis. As a result, bad debt is avoided and
there are no collection expenses. This gives the cooperative society better liquidity position and the members
feel that their investment is safe.

TYPES OF CO-OPERATIVE ORGANIZATION

The concept of co-operative was evolved with the view of protecting economically weak people from
exploitation with their joint effort by creating feelings of co-operation and co-ordination. By applying the
same concept and principle, efforts are being made to establish co-operatives in all sectors. The type of
cooperative organization depends on the motive, nature of activities or group of persons who establish them.
Farmers, small producers or even consumers may start them. So, the major types of co-operative established
in financial, commerce and industrial sectors are discussed below.

1. Consumer Co-operatives:
A co-operative society established by a group of consumers to make the availability of daily necessity goods
or consumer goods at a reasonable price and conveniently is known as consumer co-operative society. This
co-operative directly purchases goods and services from manufactures or producers and sell them at low
prices to the members and non-members. The main objective of this co-operation is to eliminate the middle

2
man from the business. The consumer goods like rice, sugar, flour, soap, salt, agricultural seeds and
fertilizers etc. are provided by these co-operatives. Majdoor Saheed Smirit Consumer Co-operative Limited,
Hith Upabhokta Consumer Co-operative Ltd., etc are the examples of consumer co-operative society.

2. Producer Co-operatives:
Producer Co-operatives societies are established by small producers to compete with big producers. The
members of these co-operatives societies collect resources jointly and buy various raw materials, tools,
equipment and other items of production in bulk and sell them to their members at reasonable price or they
collectively use it for their mutual benefits. They also provide technical and financial assistance to its
members (if required) and also help in market research, promotion and distribution of their goods. One of
the good examples of this co-operative is Maha Sahakari which is involved in processing, promotion and
distribution of honey (maha) in various places of Nepal.

3. Marketing Co-operatives:
These co-operatives are established by small farmers, producers and traders for selling of their products at
fair prices. The aim of these societies is to eliminate the middleman and sell their products directly in the
market. It collects the products of its members and through effective advertising, packaging and branding,
they sell these products in local and international markets at higher price. These types of co-operatives
provides warehousing, packing, transportation, insurance, etc. for their products and also provide loan
facilities to its members against the collateral of produced goods.

4. Credit Co-operatives:
These types of cooperatives are established by people with limited financial resources to provide financial
help and develop saving habit of its members. The main objective is to provide loan facilities to conduct
different business activities to its members like to farmers for agricultural production, to suppliers to buy
goods etc. They help to protect the members from the exploitation of the so called “Sahu”, “Mahajan” who
charge exorbitant (excessive, very high, overpriced) interest. They accept deposits from local people to meet
the funds required by the members.

5. Housing Co-operatives:
Housing Co-operative is established by low income people to provide residential facility to its members.
Such co-operative buys a big plot of land or takes the land in donation from various organizations or
government and constructs a many buildings over there. Later on, it provides the facility for its members to
purchase such house on installment basis or provide them accommodation facility at nominal rental charge.
Beside this, it provides loan facility, various raw materials at lower prices to construct house for their
members.

6. Farming Co-operatives:
It is the cooperative established by small farmers to do farming. Small farmers unite together and make
collective effort to do farming by the use of technology and fertilizers. Single and small farmers cannot use
such technology and resources. For e.g. Dairy Cooperative is established by the members who supply milk
to the cooperative.

7. Multi-purpose Co-operatives:
All above co-operative are single purpose co-operative. The co-operative society which provides different
kinds of services to its members and non-members under a single roof is known as multi-purpose co-
operative society. Such a co-operative performs multiple functions such as credit, production, marketing,
housing, farming etc. The main objective of this co-operative is to fulfill various needs of its members under
a single umbrella. “Sajha Sansthan” is good example of multi-purpose co-operative society.

ROLE OF CO-OPERATIVE ORGANIZATION IN DEVELOPING COUNTRIES

In Nepal most of the people are from lower income class and live in rural areas. The economic development
of country is not possible without the upliftment of people living in rural areas. For the economic, social and

3
moral upliftment of poor and weaker section of community, cooperative plays a vital role. The main motive
of establishment of co-operative organization is to minimize the role of lager enterprises, middlemen and
money lenders by mobilizing the scattered resources available in the country. The role and importance of co-
operatives in developing countries like Nepal is as follows:

1. Encourage in Saving
Co-operative organizations encourage farmers, employees, and small traders to develop the habit of saving
on regular basis from their minimum earnings by offering attractive rate of interest. They provide door to
door service to collect even a very small amount of money. Saving helps the people to increase their
capability of investment, which helps to generate higher income of people and ultimately leads to increase in
economic condition of people.

2. Providing Credit
Due to lack of enough capital farmers and small traders cannot expand their business. Banks demand huge
collateral for providing loan and private money lenders charge higher rate of interest by addressing both of
this problem, co-operatives provide loan facility to their members at nominal rate of interest even without
collateral; on group guarantee basis.

3. Eliminate the Middlemen

Co-operatives organizations directly purchase the goods from producers or manufactures and sell them at
low prices to its members and non-members. As a result, the profiteering the middlemen are bypassed in co-
operative business. It helps to increase the economic condition of co-operative as well as its members.

4. Generate Employment Opportunities

Unemployment is the basic problem of all developing countries. Co-operative organizations directly and
indirectly generate various employment opportunities in the society. On the one hand, they directly employ
some technical and administrative staff in their official posts and positions. On the other hand, they create
self employment opportunities even in rural areas by offering financial and technical assistance to farmers
and smaller entrepreneurs.

5. Develop Moral and Social Culture

Co-operative organization is established with the principle of “one for all and all for one” and it does not
discriminate members on the basis of their age, caste, sex, and religion. It helps to develop the feeling of
mutual help, hard work, saving, self dependence, confidence, etc. among the members. This promotes for
the development of moral and social culture of the area.

6. Improve Production and Distribution

Co-operative organization helps to improve productivity and distribution system of the society. They help to
increase the productivity of goods by doing production in large scale by using different scientific and
modern technologies. Similarly, it helps for efficient distribution of goods by purchasing in bulk directly
from manufacturer and wholesaler and ten sell those goods at cheaper rate to its members and other
customers.

7. Improve Living Standard

Co-operative organizations help to improve the living standard of their members. They encourage for
saving, distribute quality goods and services at reasonable price, provide different technical and financial
supports to the people which creates stimulus for investment and ultimately these al results to the economic
prosperity of rural people.

8. Development of Rural Areas

The co-operative organization is established to uplift the social and economic status of rural people. They
mobilize human, financial, physical and natural resources of rural areas by motivating local people through
financial and technical support for their involvement in different economic activities which ultimately
contribute to the development of rural areas.

4
9. Marketing Outputs
Co-operative organization collects products from various small producers and performs different marketing
activities like grading, packing, advertising and also transportation, warehousing and insurance of their
products. These organizations store and sell their products when the market price goes up which helps to get
higher revenue for farmer.

REGISTRATION OF CO-OPERATIVE ORGANIZATION IN NEPAL

A co-operative organization can carry out its functions only after its registration under the Co-operative Act,
2048. For registration of co-operatives following procedures should be followed.

1. Application
At least 25 people are required to submit an application jointly to the Registrar of the Cooperative Societies.
The application is prescribed and provided by the concerned department for a nominal charge. The
application form contains the following information:

a) Name and address of the proposed society.

b) Aims and objectives of the society.
c) Name and address of the members.
d) Working areas.
e) Total shares capital and division of capital into shares and denomination thereof.
f) Methods of admission of the new members and the retirement of the members for any reasons.
g) Classification of the members, their liability, rights and the duties; and
h) Any other matter as required by the Registrar.

2. Documents to be Filled
In addition to the information provided in the application above, the following documents must be submitted
along with the application signed by all the persons who have agreed to the shares to establish the society.

a) Two copies of the rules and the regulation of the society.

b) Original copy of working scheme of society.
c) Attested copy of the decisions during the preliminary meeting.
d) Personal statement and specimen signature of at least of 25 people.
e) Copies of the citizenship document of all the members.
f) Original copy of the voucher of deposit of the registration fee.
g)
3. Deposit of Registration Fees
The promoters must deposit the required fees for the registration of the society in the bank account of the
Department of Cooperatives maintained with the branch of the Nepal Rastra Bank. The counterfoil of the
deposit voucher must be attached with the as an evidence of the deposit of the required fee.

4. Certification of Registration
If the Registrar of the department of Cooperative societies is satisfied with the details and documents
provided by the members, he will enter the name of the society in the Register. In other words, a Certificate
of Registration is issued to the party concerned. The Cooperative Society comes into existence from the date
o the issuance of the certificate.

5. Receipt of Letter of Intent

In case of finance co-operatives (Saving and Credit) the promoter of the cooperatives must also receive a
“Letter of Intent” from the Nepal Rastra Bank for starting the business. This letter of intent is the legal
permission for carrying out the economic transactions like deposit and loans by the cooperative. After
receiving it only, finance co-operatives can collect the fund from public and mobilize it.

5
NATIONAL COOPERATIVE DEVELOPMENT BOARD: FORMATIONS AND FUNCTIONS
National Cooperative Development Board was set up in 2048 BS and has been entrusted to oversee the
activities of all cooperative societies in the country. Its purpose is economic and social upliftment of the
Nepalese society according to the cooperative philosophy. The chairman, of the Board is the minister of the
Agriculture. The Cooperative Act was passed in 2048 BS and NCDB was reinstituted in 2049 BS under the
Cooperatives Act 2048 BS. The Cooperative Regulations were framed in 2049 BS after the reinstitution of
NCDB.

The objective of NCDB is to assist for the development of different types of cooperative societies and
unions by formulating relevant plans and policies for the economic and social development of the
economically backward people with the cooperative principles.

Features of National Cooperative Development Board (NCDB)

1. It is established under national cooperative development act, 2049.
2. It is autonomous and corporate boy with perpetual existence.
3. It has separate legal status and a common seal for its operation.
4. Board can purchase, sale or manage property.
5. It is managed by an executive committee under the chairmanship of the Minister of Agriculture and
Co-operatives.

Formation of National Cooperative Development Board (NCDB)

NCDB is managed by an executive committee formed under the chairmanship of Ministry of agriculture. It
is formed under the NCDB Act 2049. It consists of following executive committee.

S.N. Personnel Designation

1. Minister/State Minister for Agriculture and Cooperatives Chairperson
2. Person nominated by Government of Nepal Co- chairperson
3. Chairperson, National Cooperative Federation Member
4. Governor, Nepal Rastra Bank Member
5. Secretary, Ministry of Finance Member
6. Secretary, Ministry of Supplies Member
7. Secretary, Ministry of Industries Member
8. Secretary, Ministry of Agriculture and Cooperatives Member
9. Secretary, Ministry of Local Development Member
10. Representative, National Planning Commission Member
11. Registrar, Department of Cooperatives Member
12. Any two persons elected from among the chairpersons of Central Cooperative Member
Unions
13. Any five persons nominated by Government of Nepal from among cooperators Member
or social workers from five development regions
14. Any one from the women cooperative leaders Member
15. Any two from among the experts in relevant disciplines Member
16. General Manager, agriculture development Bank Member
17. Person nominated by Government of Nepal Member-secretary

Functions of National Cooperative Development Board (NCDB)

The NCDB performs the following functions:

1. Policy Formulation
NCDB formulates necessary policies for the promotion and development of cooperative societies in
the Kingdom of Nepal.

6
2. Study and Research
NCDB conducts research and study for the development of cooperative societies. It also organizes
training programs according to the need of the cooperative societies.

3. Financial Assistance
NCDB provides financial assistance to different cooperative societies for the development of their
activities in the country. It arranges for a Cooperative Development Fund and makes them available
as grants and loan to various cooperative societies promote their activities.

4. Technical Cooperation
NCDB makes arrangement for progress of the cooperative societies and provides new technology
and technical support to promote and develop cooperative societies.

5. Investment
The NCDB invests capital in cooperation or cooperative banks. It also arranges for joint ventures
with local and foreign investors through the cooperative organization.

6. Guarantee Function
NCDB provides a guarantee in case cooperative societies do not have sufficient assets as collateral
while borrowing from banks.

7. Co-ordination
NCDB coordinates with Government Department and agencies for development activities to be
undertaken by cooperative societies.