A theoretical investigation of the modulational instability (MI) in a composite system with a nonlocal response function is presented. A composite system of silver nanoparticles in acetone is chosen, whose nonlinearity can be delicately varied by controlling the volume fraction of the constituents, thus enabling the possibility of nonlinearity management. A pump-probe counterpropagation configuration has been assumed, and the interplay between the competing nonlinearities and the nonlocalities in the MI dynamics is systematically explored. A different class of nonlocalities have been considered, and the study reveals that the nonlocality critically depends on the kind of nonlocal function. However, the general behavior is that the strength of nonlocality suppresses the MI gain, while for a rectangular function it assists the emergence of new spectral windows. We also show that the cross coupling effects are significant in enhancing MI, especially in the defocusing nonlinearity. We also emphasize the impact of the relative strength of the nonlinearities in the MI dynamics at different settings of competing nonlinearities. Thus, we emphasize the importance of the different class of nonlocal response in the MI dynamics and explore the interplay between the higher order nonlinear effects and nonlocalities in the counterpropagating configurations.