The present paper intends to explore the role of cooperatives in the continuation and sustenance of socio-economic activities of the members in a conflict economy. It is a case study of cooperative development in Nepal with insurgency problem during 1997 to 2007. We have made an attempt to find answer to the central question: How development of cooperatives was possible during the recent insurgency period in Nepal? It has been argued that development of cooperatives is achievable in a conflict economy. Even if banks are closed down cooperatives can continue their activities and earn profit and run efficiently during insurgency period. It is feasible for cooperatives to provide small loan without difficulty and the members can improve their socio-economic status. The Nepalese case study proves that cooperative movement can foster integrated and sustainable development during a period of insurgency. The study is based on an in-depth investigation of the economic activities of the co-operatives in Morang District of Nepal for the period from 1997 to 2007. This is a descriptive as well as an analytical research work.