Risk Management and Efficiency of Cooperatives : A Study of Nepalese Cooperative Societies

The people are achieving equal aims and goals have forming Cooperative Society. It has made access to the capital market for the people of the poor, middle class, and illiterate in a rural area whereas this became one of the wonderful business models in an urban areas. Risk management always has been included, but different stakeholders are most critical of all risks faced by depository institutions. Though regulatory prerequisite imposed to Cooperative has not standard as imposed to banks by the central bank, and the number of risks has been observed in this sector. Along with the horizontal and vertical growth of Cooperatives, it diluted the ethical practices, and resulted issues, such as adverse selection problem, lack of transparency and poor governance system. The study has an analysis of risk management and efficiency of work and is used in both quantitative and qualitative methods. A strong and prompt regulation should be imposed to eliminate such unfair practices. Credit risk management of Cooperative does not seem to be satisfactory so, concerned authorities should select appropriate credit risk management systems and management should give emphasis for credit risk management. Risk variables are significantly associated with financial performance, the efficiency of cooperatives, and organizational factors. The credit Vulnerability Ratio of long-term solvency risk is 32.5%, credit default risk is 26.3%, liquidity risk is 20%, investment risk is 19.4%, governance system risk is 17.2% and transparency risk is 16.4% which indicate the level of sensitiveness or danger of those variables during the day-to-day operation of Cooperatives to manage risk. A huge discrepancy on sizes of activities between the Cooperatives, unanimous regulatory direction for policy reform may not be effective for this sector