⏱ 4 min read
Besides banks, many Nepalis save and borrow through cooperatives and microfinance institutions, and protect themselves through insurance. The Constitution names the cooperative sector as one of the three pillars of the economy. This note explains cooperatives, microfinance and insurance, their history in Nepal, principles and regulators.
1. Cooperatives
- A cooperative is an autonomous group of people who join voluntarily to meet common economic and social needs through a jointly owned, democratically controlled enterprise.
- Robert Owen is called the father of the cooperative movement; the Rochdale Pioneers (England, 1844) set up the first successful modern cooperative.
- Nepal’s first cooperative was the Bakhan Cooperative in Chitwan, set up in 2013 BS for settlers in the Rapti valley.
- The current law is the Cooperative Act 2074. Cooperatives are listed in all three levels of government; the federal ministry is the Ministry of Land Management, Cooperatives and Poverty Alleviation.
- The Constitution names public, private and cooperative sectors as the three pillars of the economy.
- The International Day of Cooperatives is the first Saturday of July.
| Seven cooperative principles (ICA) |
|---|
| 1. Voluntary and open membership |
| 2. Democratic member control (one member, one vote) |
| 3. Member economic participation |
| 4. Autonomy and independence |
| 5. Education, training and information |
| 6. Cooperation among cooperatives |
| 7. Concern for community |
2. Microfinance
- Microfinance gives small loans, savings and other services to low-income people, usually without collateral, often through groups.
- The Grameen Bank model was developed by Muhammad Yunus in Bangladesh; he and the bank won the Nobel Peace Prize in 2006.
- In Nepal, the Small Farmers Development Programme (2032 BS) of the Agricultural Development Bank was an early model, followed by Grameen Bikas Banks from 2049 BS.
- Microfinance institutions are Class D institutions (laghubitta) licensed by Nepal Rastra Bank.
3. Insurance
- Insurance is a contract in which the insurer promises to pay for a specified loss in return for a premium.
- Two main types: life insurance and non-life (general) insurance (fire, vehicle, health, crop, travel).
- The regulator is the Nepal Insurance Authority (formerly the Beema Samiti, set up in 2049 BS).
- The government-owned Rastriya Beema Sansthan (National Insurance Corporation) is a major insurer.
- The Health Insurance Board runs the national social health insurance programme under the Health Insurance Act 2074.
| Principle of insurance | Meaning |
|---|---|
| Utmost good faith | Both sides must disclose all material facts honestly |
| Insurable interest | The insured must suffer a loss if the property is damaged |
| Indemnity | Pays only the actual loss, not a profit (non-life) |
| Contribution | If insured with several companies, they share the loss |
| Subrogation | After paying, the insurer takes over the right to recover from a third party |
| Proximate cause | The nearest main cause of loss decides the claim |
4. Key facts at a glance
| Sector | Fact |
|---|---|
| Cooperatives | Regulated by the Department of Cooperatives under the Cooperative Act, 2074 |
| Cooperative principles | Seven ICA principles, including voluntary membership and democratic control |
| Microfinance | Class D institutions licensed by Nepal Rastra Bank |
| Insurance regulator | Nepal Insurance Authority (formerly Insurance Board) |
| Insurance law | Insurance Act, 2079 |
| Health insurance | Run by the Health Insurance Board |
5. Problems and reforms
- Some savings and credit cooperatives collapsed, causing loss of members’ deposits.
- Weak supervision of cooperatives by local and provincial governments.
- Over-lending by several microfinance institutions to the same borrowers.
- Low insurance coverage, especially in rural areas.
- Reforms include stronger regulation, credit information sharing and financial literacy.
6. How this topic is asked in the exam
Objective items ask the regulator of each sector, the cooperative principles and the class of microfinance institutions. Subjective questions ask about the role of cooperatives in Nepal’s economy or problems in the cooperative sector. Mention both benefits and recent crises.
📌 Key points to remember
- Robert Owen: father of cooperation; Rochdale Pioneers (1844) first modern cooperative.
- Nepal’s first cooperative: Bakhan Cooperative, Chitwan (2013 BS).
- Current law: Cooperative Act 2074; seven ICA principles; one member, one vote.
- Cooperatives are one of the three pillars of the economy.
- Grameen Bank: Muhammad Yunus, Bangladesh; Nobel Peace Prize 2006.
- Microfinance institutions are Class D (laghubitta), licensed by NRB.
- Insurance regulator: Nepal Insurance Authority (formerly Beema Samiti).
- Principles: utmost good faith, insurable interest, indemnity, contribution, subrogation, proximate cause.
📝 Quiz
Test yourself: Cooperatives, Microfinance and Insurance in Nepal
50 questions check what you read about Cooperatives, Microfinance and Insurance. Each attempt picks 25 at random.
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