Financial Intermediaries and Economic Development – A Study of Transaction Costs of Borrowing for the Poor

Swamy, Vighneswara and B.K, Tulasimala (2011): Financial Intermediaries and Economic Development – A Study of Transaction Costs of Borrowing for the Poor. Published in: International Journal of Banking and Finance , Vol. 8, No. 3 (8 November 2011): pp. 54-72.

Abstract

This study while validating the increasing role for financial intermediaries in economic development has attempted to highlight the importance of reduction of transaction costs for financial deepening and consequent economic growth. It is elucidated that higher transaction costs of borrowing for the poor in particular will retard the long-term growth of rural financial markets. Further, the empirical analysis based on the primary (survey) data has analysed and established that microfinance models of lending offer considerably lower costs of borrowing than those in regular models of direct lending by banks. The study opines that microfinance model of lending can provide cost-efficient model of financial intermediation for speedy financial development to further economic growth.

• Item Type: MPRA Paper
• Language: English
• Keywords: Transaction Costs, Banks; Microfinance, Nonprofit Institutions; NGOs, Economic Development; Financial Markets, Savings, Institutions and Growth
• Subjects: D - Microeconomics > D2 - Production and Organizations > D23 - Organizational Behavior ; Transaction Costs ; Property Rights; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages; L - Industrial Organization > L3 - Nonprofit Organizations and Public Enterprise > L31 - Nonprofit Institutions ; NGOs ; Social Entrepreneurship; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O16 - Financial Markets ; Saving and Capital Investment ; Corporate Finance and Governance; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O43 - Institutions and Growth

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