Nepal’s cooperative sector, known as “Sahakari”, is a significant and historically entrenched part of the country’s socio-economic landscape. The cooperative movement in Nepal has a long history, formally beginning in the 1950s, and was initially focused on meeting the needs of the rural population in the agricultural sector.¹ Agricultural cooperatives are still the most widespread and influential segment, providing their members with access to vital resources such as credit, seeds, fertilizers, and promoting the adoption of modern agricultural methods.¹The scale of Sahakari’s activities is impressive: cooperatives are present in almost all of the country’s 753 local governments, with the exception of a few of the most remote and inaccessible mountain areas.³, indicating their deep penetration into the economic fabric of Nepal, especially in rural areas.

However, despite its obvious importance, Nepal’s cooperative sector plays a dual role, posing a difficult dilemma. On the one hand, Sahakari has significant potential as an engine for inclusive economic growth, contributing to increased financial inclusion for the general population, poverty reduction, and economic empowerment, especially for vulnerable groups.¹On the other hand, cooperatives are associated with significant risks that may pose a threat to the country’s financial stability. These risks include problems with asset quality and management, operational inefficiencies, limited integration of modern technologies, and challenges in corporate governance.¹General problems in Nepal’s financial sector, such as rising non-performing loans (NPLs), may also indirectly affect cooperatives, exacerbating their vulnerability.⁴Historical orientation of many cooperatives towards agriculture1 creates additional vulnerability as their financial health is closely linked to agricultural sector risks such as climate change6, irrigation problems8and the availability of quality resources such as seeds and fertilizers.14This dependence may result in crop failures or falling prices for agricultural products having a direct impact on cooperatives’ loan portfolios, increasing their NPLs and threatening financial sustainability.

Wide geographical coverage of cooperatives, including remote areas³, on the one hand, highlights their role in ensuring financial inclusion of the “last mile”, but on the other hand, it creates difficulties for effective supervision and management, increasing operational risks. In addition, insufficient technological integration in the cooperative sector¹ amidst the active digitalization of Nepal’s banking sector²²could lead to a reduction in the competitiveness of cooperatives and their vulnerability in the long term if they are unable to offer their members modern digital services.

The objective of this study is to provide a comprehensive analysis of the cooperative sector (Sahakari) in Nepal. The paper will assess its contribution to inclusive economic growth, identify and analyze key risks associated with its activities that may affect the country’s financial stability, and examine regulatory challenges and the effectiveness of the existing supervisory framework. The report is structured by analyzing the role of cooperatives in inclusive development, examining financial, operational and systemic risks in detail, assessing the regulatory environment, and concluding with conclusions and policy recommendations for stakeholders.

Cooperatives as a Catalyst for Inclusive Growth in Nepal

The cooperative sector plays a multifaceted role in Nepal’s economy, serving as an important contributor to inclusive growth, especially in rural areas and for the vulnerable. Its impact is seen in both economic contribution and social impact.

Agriculture has historically been the backbone of the Nepalese economy, providing employment to approximately 65% ​​of the population and generating about 24-31% of the country’s gross domestic product (GDP).³⁰In this context, cooperatives (Sahakari) play a critical role as a key link in supporting the agricultural sector.¹They provide farmers with access to financial resources, accounting for an estimated 30% of all agricultural lending.²In addition, cooperatives supply agricultural producers with high-quality seeds, fertilizers and promote the introduction of modern agricultural technologies, which directly affects the increase in productivity and income of small farms.¹Agricultural sector projected to grow at 3.28% in current fiscal³¹will depend largely on the efficient functioning of the cooperative network. In addition to agriculture, cooperatives also play a role in supporting small and medium-sized enterprises (SMEs), which are an important source of employment and economic diversity.

The social significance of cooperatives is no less important. They help to expand financial inclusion, especially for those groups traditionally excluded from the formal banking system, such as small and marginalized farmers, who often lack sufficient collateral to obtain loans from commercial banks.²Overcoming these financial barriers is a direct contribution to poverty reduction and economic opportunity.²Considering that the overall financial literacy rate in Nepal is 57.9%³², cooperatives, as more accessible and understandable financial institutions, play an important role in involving the population in economic life. Despite the progress made in reducing poverty, the problem of inequality in Nepal remains relevant³³, and cooperatives, promoting grassroots empowerment¹, can contribute to a more equitable distribution of economic benefits. However, the low level of financial literacy of the population³²may limit the effective use of financial services provided by cooperatives and even increase risks for members themselves, for example through misunderstanding of lending terms or over-indebtedness.

Success stories of cooperatives confirm their potential. A 2017 study by the Nepal Agricultural Cooperative Central Federation (NACCFL) found that farmers who are members of cooperatives tend to achieve higher yields of staple crops (maize, rice, wheat) and have higher incomes compared to farmers who are not part of the cooperative movement.²This is achieved through training and technical support in modern agricultural technologies provided by cooperative associations such as NACCFL.²In addition, modern initiatives such as the GeoKrishi project actively collaborate with farmer cooperatives to spread climate-resilient farming practices and digital technologies.³⁵, which opens up new prospects for modernization of the sector through cooperative structures. However, the success of many cooperatives is dependent on external support programs such as the Prime Minister’s Agricultural Modernization Project (PMAMP)³⁶and various agricultural subsidies⁴¹, creating certain risks to their sustainability in the event of a reduction or termination of such state assistance. The effectiveness of cooperatives in promoting modern agricultural technologies may also be limited by general barriers existing in Nepalese agriculture, such as fragmentation of land holdings, lack of capital among farmers, and lack of technical expertise.⁵²

Table 1: Contribution of Cooperatives to Key Economic and Social Indicators of Nepal

This table clearly demonstrates the significant contribution of the cooperative sector to the economy and social sphere in Nepal, highlighting their role in providing agricultural credit, increasing crop yields, disseminating modern technologies and ensuring financial inclusion.

Analysis of risks associated with the activities of the cooperative sector

Despite its important role in promoting inclusive growth, Nepal’s cooperative sector faces a number of significant risks that could threaten both its own sustainability and the country’s overall financial stability. These risks can be grouped into financial, operational, governance and systemic risks.

Financial risks

One of the most serious financial risks is Asset quality and non-performing loan (NPL) levels. Nepal’s banking sector has seen an alarming trend of NPL rising from 1.20% in 2021 to 2.98% in mid-2023⁵⁶, and further to 4.0% by April 2024.⁴By Q3 2024/25 (mid-April 2025), the average NPL level of commercial banks reached 4.83%⁵⁷, while for some banks this figure exceeds 5-8%.⁵⁷Nepal Rastra Bank (NRB) has repeatedly pointed to deteriorating asset quality as a major challenge for the financial system.⁵The International Monetary Fund (IMF) also expresses concern about financial sector vulnerabilities and recommends a thorough review of loan portfolios.⁶²Although direct data on NPLs specifically for cooperatives is limited in the materials provided, their traditional focus on lending to agriculture (a sector vulnerable to climate and market shocks) and servicing riskier categories of borrowers suggests that cooperatives may face similar or even more severe asset quality problems. Rising NPLs in the banking sector may be an indicator of general economic difficulties that inevitably affect cooperatives. The lack of transparent and regular data on NPLs specifically for the cooperative sector masks this potentially significant risk, which is a problem in itself.

Liquidity and capital adequacy risks are also a concern. Commercial banks in Nepal have been facing difficulties in maintaining capital adequacy ratios.⁵While the NRB says that overall, the capital adequacy, liquidity and leverage ratios of banking and financial institutions (BFIs) are above regulatory requirements, the continued deterioration in asset quality is a source of concern.⁶⁰Monetary policy for the 2024/25 financial year includes measures aimed at reducing pressure on banks’ capital funds.⁶³If cooperatives, like some banks, experience capital pressure due to rising nonperforming assets, this could threaten their solvency and ability to meet their obligations to their members. Liquidity risks are particularly acute for smaller cooperatives with limited access to refinancing markets.

Transparency of financial reporting and management in the cooperative sector leaves much to be desired. There are numerous complaints about the lack of transparency and inefficient use of agricultural subsidies, which are often distributed through cooperative structures.⁴¹The need to strengthen supervision and increase transparency in the activities of cooperatives is emphasized.¹Insufficient transparency makes it difficult to objectively assess the real financial condition of cooperatives and the effectiveness of their activities, and also creates fertile ground for ineffective management and potential abuses.

Operational and management risks

The quality of corporate governance in cooperatives often suffers due to the influence of informal networks known as “afno manche” (our people), and nepotism. The afno manche culture in Nepal involves the use of informal networks to gain various advantages, which is recognized to contribute to corruption and create unequal access to resources and opportunities.⁶⁴This practice has significant implications for personnel decisions and resource allocation within formal organizations, including cooperatives.⁶⁴Hierarchy and deep respect for elders are key features of Nepalese business culture.⁶⁵, which can both promote stability and perpetuate inefficient practices. Nepotism and favoritism have been noted as problems in the allocation of public resources, including agricultural subsidies, which are often channeled through cooperatives.⁴¹Afno manche influences can seriously undermine the principles of meritocracy and good governance in cooperatives. Decisions on lending, hiring, or managing assets can be based on personal connections rather than economic feasibility or expertise, inevitably increasing risks, inefficiencies, and potential losses. Moreover, such a culture can contribute to the concealment of real problems in cooperatives, for example through the practice of “evergreening” related-party lending, making it difficult for regulators to identify and address problems in a timely manner.

Qualification level of staff and management in the cooperative sector is also a source of concern. Nepal has a general shortage of skilled manpower in various sectors, including finance.⁶⁹There are problems with the effectiveness of staff training and the subsequent transfer of acquired knowledge in the workplace.⁷¹Low level digital⁷²and financial literacy³²in general throughout the country, the situation is aggravated. For example, the shortage of actuaries and underwriters in the insurance sector⁷⁴may indicate broader issues with the availability of qualified financial professionals. A shortage of personnel with competencies in risk management, financial analysis, modern banking technologies and cybersecurity poses a serious operational risk to cooperatives. This can lead to errors in strategic and operational decision-making, ineffective management of assets and liabilities, and increased vulnerability to external and internal threats. Low levels of financial literacy among both members and employees of cooperatives create a “double vulnerability”: members may not understand the risks of financial products, and employees may not adequately manage them.

Vulnerability to fraud and cyber threats is another significant operational risk. Nepal has seen an increase in cyber attacks, including on financial institutions.⁷⁶There is a general weakness in digital security measures and the inability of some banks, including even the central bank, to update their security systems in a timely manner.⁷⁷Cases of fraud using forged documents to obtain loans have been recorded in the banking sector⁵⁶, and similar risks are relevant for cooperatives. Urgent measures are needed to strengthen cybersecurity and data protection in the financial sector.⁷⁶Cooperatives, especially those just starting to implement digital services and may not have sufficient resources to ensure a high level of security, risk becoming easy targets for cybercriminals. Internal fraud is also a serious threat when internal controls and governance deficiencies are weak.

Systemic risks

The potential impact of problems in the cooperative sector on Nepal’s overall financial stability cannot be underestimated. Cooperatives have significant population outreach, especially in rural areas, and provide a significant share of agricultural credit in the country.²Their relationships with other financial institutions (e.g. through deposits, loans from banks, or participation in payment systems) can act as a conduit for risk transmission. Problems in one large cooperative or simultaneous difficulties in a group of cooperatives can undermine confidence in the financial system as a whole, especially in regions where cooperatives are the main or only available financial intermediaries. The IMF has called attention to the need for a comprehensive strategy to address the problems associated with the activities of troubled savings and credit cooperatives.^62, which highlights the potential systemic nature of these risks. Delays in the implementation of public capital expenditure82and general political instability84may negatively impact the economic activity of cooperative borrowers, particularly in the agricultural and SME sectors, which may be dependent on government contracts or infrastructure projects, thereby increasing the credit risks for cooperatives.

Table 2: Key Risk Indicators in Nepal’s Cooperative Sector

This table catalogues the key risks inherent in the cooperative sector in Nepal and highlights areas that require close attention from regulators and cooperatives themselves to ensure their sustainability and minimize threats to the financial system.

Regulatory challenges and supervisory effectiveness

The regulatory environment and effective supervision play a crucial role in ensuring the stability and healthy development of the cooperative sector in Nepal. However, the current system faces a number of serious challenges that require urgent attention.

The current legal framework governing cooperatives includes the main Cooperative Act. In addition, financial cooperatives may be regulated by the Nepal Rastra Bank (NRB), which is responsible for supervising the banking sector and maintaining overall financial stability.⁸⁷Insurance cooperatives or cooperatives offering micro insurance products are under the responsibility of the Nepal Insurance Authority (NIA).⁹⁵The activities of cooperatives related to securities may fall under the purview of the Securities Exchange Board of Nepal (SEBON).¹⁰¹This fragmentation of the regulatory landscape can lead to “regulatory arbitrage,” where cooperatives choose less strict jurisdictions, or, conversely, to duplication of oversight functions and the creation of unnecessary administrative burdens, especially for multi-industry cooperatives. It can also leave “gray areas” that are not covered by adequate oversight.

One of the key issues is insufficient effectiveness of supervisory authorities. The IMF points to the need to strengthen the institutional governance, independence and accountability of the NRB.⁶²In a broader context, Nepal’s government bodies face problems of bureaucracy and corruption.⁴¹, which inevitably affects the quality of supervision. Political instability and frequent changes of officials hinder the consistent implementation of policies and weaken supervisory institutions.⁸²NIA also acknowledges the need to improve business practices and systematize the insurance market, which indirectly points to existing weaknesses in supervision.⁹⁵

Difficulties in Ensuring Compliance with Prudential Standards are another major challenge. The observed increase in non-performing loans (NPL) and asset quality issues in the banking sector⁴ demonstrate the difficulties in meeting prudential requirements even in the more tightly regulated banking sector. For cooperatives, where supervision has traditionally been less stringent, these problems may be even more acute. The IMF recommends bringing Nepal’s financial sector regulation closer to international standards.⁶²Failure of cooperatives to maintain adequate capital, liquidity and risk management standards makes them highly vulnerable to economic shocks.

Of particular concern are Problems in the field of combating money laundering and terrorist financing (AML/CFT) Nepal’s recent inclusion in the FATF grey list highlights serious deficiencies in the country’s AML/CFT system.⁶²The IMF strongly recommends strengthening the legal, regulatory and supervisory framework in this area.⁶²NRB and NIA are already issuing relevant directives to supervised institutions.⁹⁹Cooperatives, especially those with less stringent internal controls and significant volumes of cash transactions, can be used in money laundering schemes. Being on the FATF “grey list” increases the risks for the entire financial system, including cooperatives, and can make international transactions more complex and expensive.

In light of these challenges, it is obvious the need to reform the regulatory environment to improve the sustainability and transparency of the cooperative sector. The IMF calls for ambitious structural reforms to support sustainable and inclusive growth, including improving the investment climate and governance.⁶²Financial market regulators such as the NIA⁹⁵ и SEBON ¹⁰¹, are also working to update their regulations. These reforms should comprehensively affect the cooperative sector so that it can safely and effectively fulfill its socio-economic mission. NRB initiatives to create a “regulatory sandbox” for fintech companies²²can provide cooperatives with a platform to test and implement innovative digital solutions under the supervision of a regulator, potentially reducing the risks associated with independently implementing untested technologies and facilitating their digital transformation.

Macroeconomic and sociocultural context affecting cooperatives

The cooperative sector in Nepal does not operate in a vacuum; it is closely intertwined with the country’s overall macroeconomic conditions and its unique socio-cultural characteristics. These factors can both create opportunities and pose specific risks for Sahakari.

The impact of remittances on Nepal’s economy is colossal. According to various estimates, they make up from 21% to more than 30% of the country’s GDP.³⁰In 2022, Nepal ranked ninth in the world in terms of remittances to GDP ratio.¹⁰⁷In the first nine months of the 2024/25 financial year, their inflow amounted to NPR 1,191.31 billion.¹⁰⁹These funds support private consumption.¹⁰⁸and improve the balance of payments.¹¹⁴For cooperatives, this means, on the one hand, an increase in the potential savings of their members and a rise in demand for financial services. However, on the other hand, such a large influx of foreign currency creates the risk of “Dutch disease”.¹⁰⁷This phenomenon could lead to an appreciation of the national currency (in real terms), making imported goods more affordable and domestic products, including agricultural products, less competitive. Such a development could undermine the economic base of cooperative members, reduce their incomes and, as a result, increase the credit risks for the Sahakari themselves. In addition, remittances could reduce incentives to work in traditional sectors such as agriculture.114, where cooperatives play a key role.

Political instability is a chronic problem in Nepal.³⁰Frequent changes of government and political uncertainty have a negative impact on the development and implementation of long-term economic policies, including those related to the cooperative sector.⁸²This leads to a lack of consistency in regulation, frequent personnel changes in supervisory bodies, and creates opportunities for political interference in the activities of cooperatives, for example in the distribution of subsidies or the appointment of management. Political interference in financial regulations also weakens the institutional integrity of the entire system.¹¹⁶The combination of political instability and an entrenched afno manche culture creates a particularly hostile environment where regulatory oversight can be weakened and the internal governance of cooperatives distorted by nepotism, greatly increasing the risks.

Infrastructure limitations seriously hinder Nepal’s economic development and affect cooperatives. The country suffers from poor transportation networks, logistical problems³⁰, insufficient and unstable energy supply (despite significant hydropower potential)¹¹⁹and limited access to digital infrastructure, especially in rural areas.¹²⁸These constraints increase transaction costs for cooperatives, hinder their members’ access to markets (especially for agricultural products), limit the adoption of modern digital financial services, and increase risks, such as product spoilage due to lack of refrigeration capacity or power outages. Unreliable infrastructure also indirectly perpetuates informal and less transparent practices, as modern monitoring and reporting systems often require stable electricity and internet access.

Sociocultural aspects Nepal has a profound influence on the functioning of cooperatives. Culture “Afno Manche” (our people), based on informal networks and mutual assistance, on the one hand, can contribute to the creation and cohesion of cooperatives.⁶⁴A high level of trust in recommendations from friends, known as “word of mouth”¹³⁵, can also play a positive role in attracting members to cooperatives. However, as already noted, “afno manche” often leads to nepotism, ineffective management, difficulties in collecting debts from “their own” and concealment of problems within the cooperative, which significantly increases financial and operational risks. The concept“saving face” ⁶⁵, which is common in Nepalese culture, can hinder open discussion of emerging issues and the making of timely and perhaps tough but necessary management decisions.

State support programs and their effectiveness

The Government of Nepal has implemented a number of initiatives to support the cooperative sector and agriculture, recognizing their importance to the country’s economy. Key among these are the Prime Minister’s Agricultural Modernization Project (PMAMP) and various agricultural subsidy programs.

Launched in the fiscal year 2016/17 (2073 Nepali calendar) and with a duration of 10 years (till 2082/2035), PMAMP is the largest project of the Ministry of Agriculture and Livestock Development (MoALD) with a total estimated budget of NPR 130 billion.¹³⁸Its main objective is to modernize, commercialize, ensure sustainability and self-sufficiency of the agricultural sector of Nepal.³⁸The project is structured according to the principle of creating specialized agricultural zones of various levels: “pockets”, “blocks”, “zones” and “superzones”.³⁸Agricultural subsidies are provided for the purchase of seeds, fertilizers, agricultural machinery and other needs.⁴¹Over the last five financial years (2019/20 to 2023/24), NPR 107 billion was allocated for agricultural subsidies, with 81% of this amount (NPR 87.35 billion) going towards subsidising chemical fertilisers.³⁷PMAMP received NPR 6.62 billion of the total direct subsidies, which were distributed through 141,670 agricultural cooperatives, groups and firms.³⁷For the 2024/25 financial year, NPR 57.29 billion (about 3% of the national budget) has been allocated for agriculture and livestock development, of which NPR 2.98 billion is for PMAMP and NPR 27.95 billion is for fertilizer subsidy.⁴¹These figures indicate significant public investment in the sector, where cooperatives are important delivery channels for programmes.

Despite the declared support and significant financial injections, the effectiveness of government programs raises serious questions Numerous reports and studies indicate that subsidies often fail to reach small and truly needy farmers.⁴¹The main obstacles cited are bureaucratic complications, lack of transparency, poor management and corruption. According to a 2018 report, up to 35% of subsidies could go to “commissions” for officials.⁴⁴It is noted that politically connected individuals and large landowners often receive unfair advantages in the distribution of aid.⁴¹The assessment of the results of PMAMP is also ambiguous: it is stated that its real results “remain to be seen” and the implementation of the project is “far from satisfactory”.³⁶Seed subsidy programs typically cover only wheat and rice.¹⁷, which limits diversification. Subsidies for organic fertilizers, despite their importance for sustainable agriculture, are not being developed as they should be.¹⁷This ineffectiveness of government programs not only fails to achieve the stated goals of modernization, but can also undermine the potential of cooperatives as instruments of inclusive growth if they become dependent on ineffective support systems.

Cooperatives play a central role in the implementation of state agricultural programs, acting as the main partners of PMAMP³⁷and channels for the dissemination of modern technologies and improved access to markets.³⁹However, if cooperatives themselves suffer from internal governance problems, such as the influence of afno manche or a lack of skills, they may not only fail to deliver on their mission, but also become part of the problem of inefficient and non-transparent distribution of state support. This creates a vicious circle in which weaknesses in state programs are compounded by weaknesses in the cooperative sector itself. Problems with the implementation of PMAMP and other programs may be due not only to corruption, but also to the lack of capacity of the cooperatives themselves (in terms of management skills, technical knowledge, access to information) to effectively absorb and use the resources allocated.

High share of subsidies allocated to chemical fertilizers (81% of all agricultural subsidies³⁷; 49% of the total agricultural budget for FY 2024/25³⁷), with insufficient support for organic farming¹⁷, raises concerns in terms of long-term sustainability. This could lead to soil degradation, water pollution and increased reliance on imported fertilizers, which is contrary to sustainable development goals and could create new risks for cooperative members. Similarly, limiting seed subsidies mainly to wheat and rice¹⁷hinders the necessary diversification of agriculture and reduces its resilience to market and climate shocks, limiting the potential of cooperatives working with other crops, such as pulses or oilseeds.¹⁷

Conclusion and strategic recommendations

An analysis of Nepal’s cooperative sector (Sahakari) reveals its complex and dual nature. On the one hand, cooperatives have an undeniable and significant potential to promote inclusive economic growth, especially in the agricultural sector and in providing financial inclusion to large sections of the population, including vulnerable groups. They have historically played and continue to play an important role in the socio-economic life of the country. On the other hand, this potential is seriously undermined by a complex set of financial, operational and governance risks. These risks are exacerbated by existing weaknesses in the regulatory environment, inadequate supervision and the influence of specific socio-cultural factors such as the practice of afno manche. The challenges identified are not insurmountable, but their solution requires a systemic, comprehensive and coordinated approach by all stakeholders.

To unlock the potential of the cooperative sector and minimise the risks associated with it, the following policy recommendations are proposed to the Government of Nepal, Nepal Rastra Bank (NRB), Insurance Authority of Nepal (NIA), Securities Exchange Board of Nepal (SEBON) and other relevant agencies:

1. Improving legislation and strengthening supervisory functions:

• Develop and implement uniform, clear and proportionate prudential standards for financial cooperatives, harmonized with banking regulation, but taking into account the specifics of the cooperative model (size, nature of operations, social mission). This includes requirements for capital adequacy, liquidity management, asset quality and disclosure.⁶²
• Strengthen supervisory capacity either by creating a dedicated independent regulator for cooperatives with financial activities or by clearly delineating powers and strengthening coordination between existing bodies (NRB, NIA, Department of Cooperatives). It is important to provide supervisory bodies with sufficient resources, qualified personnel and technology.
• Provide institutional, functional, personnel and financial independence and accountability of regulatory authorities, minimizing the possibilities for political interference in their activities.⁶²
• Actively implement risk-based approach to supervision, focusing on the largest and most systemically important cooperatives, as well as those showing signs of increased risk.⁹⁸
• Strengthen control over compliance with AML/CFT legislation in the cooperative sector, given Nepal’s recent inclusion in the FATF grey list.⁶²

2. Raising standards of corporate governance and risk management in cooperatives:

• Implement mandatory minimum requirements for qualifications, experience and business reputation for managers and board members of cooperatives, especially those that manage significant financial resources.
• Develop and distribute standard policies and procedures on managing key risks (credit, operational, liquidity, market, cybersecurity), adapted for cooperatives of different sizes and profiles.
• Stimulate the implementation of regular independent audits (financial and operational) in cooperatives, with subsequent monitoring of the implementation of auditors’ recommendations.
• Active counteract the influence of informal connections (“afno manche”) decision-making in cooperatives by increasing the transparency of procedures (e.g. lending, hiring), introducing clear criteria and strengthening the role of independent members on supervisory boards (if applicable).⁶⁴

3. Developing financial and digital literacy programs:

• Develop and implement national and regional financial literacy programs, specifically aimed at members and potential members of cooperatives, with an emphasis on understanding financial products, risks and the rights of consumers of financial services.³²
• Organizesystematic training for managers and employees of cooperativesthe basics of financial management, modern risk management methods, digital technologies and customer service standards.
• To assist improving digital literacy among the population, especially in rural areas, for safer and more efficient use of digital financial services offered by cooperatives.⁷²

4. Stimulating the implementation of modern technologies and innovations:

• Provide support for digitalization of cooperatives through the provision of technical assistance, advisory services and, possibly, through the use of mechanisms such as the NRB’s ‘regulatory sandbox’.²²This will improve operational efficiency, transparency, improve risk management and expand the range and availability of services.
• Facilitate implementation modern agricultural technologies through cooperatives, ensuring that they are economically viable, accessible to small farmers and consistent with sustainable development principles.¹³⁹

5. Reforming the system of state subsidies and support programs:

• To increase dramatically transparency and accountability in agricultural subsidy distribution processes and other state aid, minimizing corruption risks and political influence. This includes the publication of data on recipients and the results of the use of funds.⁴¹
• Conduct revision of the subsidy structure, shifting the focus from supporting current costs (e.g. excessive subsidies for chemical fertilizers) to stimulating long-term investments in sustainable development: organic farming, improved irrigation systems, farmer training, production diversification, and development of storage and processing infrastructure.¹⁷
• Provide a strictly targeted nature of subsidies, so that they are guaranteed to reach small farmers in genuine need and contribute to increasing their productivity and incomes, rather than ending up in the hands of big players or middlemen.

The success of these reforms will depend largely on the existence of strong political will and the ability of the state to overcome entrenched informal practices and corruption schemes, which requires not only technical solutions but also deep changes in the culture of governance. Effective use of the significant volumes of remittances coming into the country¹⁰⁹, through cooperatives for productive investment rather than just consumption, can be a powerful driver of inclusive growth. However, this requires cooperatives to have a high level of trust among the population, offer attractive and understandable financial products, and demonstrate sound and professional governance. It is also important to understand that addressing the challenges in the cooperative sector cannot be isolated from overall efforts to improve the business climate, develop infrastructure, and improve governance in Nepal.

If the proposed comprehensive measures are implemented, Nepal’s cooperative sector (Sahakari) can be transformed into a more sustainable, transparent and effective institution that makes a significant contribution to the country’s economic development and the well-being of its citizens, without creating excessive risks for the financial system. Ignoring the existing problems and challenges can lead to increased risks, loss of public trust and unrealized potential of cooperatives as a unique tool for inclusive development.for future generations.factors for sustainable economic growth and improving the quality of life of the people of Nepal.

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