Financial Intermediaries and Economic Development: Evidence on Transaction Costs of Borrowing by the Poor

Authors

  • Vighneswara Swamy Indian Business School-Hyderabad, India
  • B.K. Tulasimala University of Mysore, India

DOI:

https://doi.org/10.32890/ijbf2011.8.3.3

Keywords:

Transaction costs, Banks, Microfinance, Nonprofit institutions, NGOs, Economic development, Financial markets, Savings institutions, growth

Abstract

This study, while validating the increasing role for financial intermediaries in economic development, analyzes the importance of reducing the transaction costs for financial deepening and, consequently, economic growth. It shows that higher borrowing transaction costs for the poor in particular will retard the long-term growth of rural financial markets. Further, the empirical analysis based on our primary (survey) data indicates that the microfinance models of lending offer considerably lower costs of borrowing than those in regular models of direct lending by banks. The study suggests that microfinance model of lending can provide cost-efficient avenue for speedy financial development and, subsequently, economic growth.

 

References

Beck, T., Levine, R., and Loayza, N, (2000). Finance and the sources of growth. Journal of Financial Economics, 58: 261-300.

Beck, T., Demirgüç-Kunt, A., and Levine, R., (2007). Finance, inequality and the poor. Journal of Economic Growth, 12(1): 27-49

Bourguignon, F., (2003). The growth elasticity of poverty reduction; explaining heterogeneity across countries and time periods, in Inequality and growth: Theory and policy implications, ed. T. Eicher and S. Turnovsky, Cambridge, MA: MIT Press.

Steven, Cheung, N. S., (1992). On the new institutional economics in L.Werin and H. Wijkander (eds.), Contract economics, Basil Blackwell Publishers 1992: 48-

Deininger, K., and Squire, L., (1998). New perspectives on old issues: Inequality and growth. Journal of Development Economics, 57(2): 259-288.

Demirgüç-Kunt, A., and Maksimovic, V., (1998). Law, finance, and firm growth. Journal of Finance, 53: 2107–2137

Dollar, D., and Kraay, A., (2002). Growth is good for the poor. Journal of Economic Growth, 7: 195–25 Gonzalez-Vega Claudio, Schreiner Mark, Meyer Richard L., Rodriguez Jorge and Navajas

Sergio, (1997). BancoSol: the challenge of growth for micro finance organisations, OECD Publication

Karduck Stefan and Siebel Hans Dieter, (2004). Transaction costs of self-help groups in NABARD‘s SHG banking program: a study in Karnataka state. NABARD, India

Levine, R, (1997). Financial development and economic growth: views and agenda. Journal of Economic Literature, 35: 688-726.

Levine, R, (1998). The legal environment, banks, and long-run economic growth. Journal of Money, Credit and Banking, 30: 596-613.

Levine, R, (1999). Law, finance, and economic growth. Journal of Financial Intermediation, 8: 36-

Llanto Gilberto, M, and Chua Ronald T, (1996). Transaction costs of lending to the poor: A case study of two Philippine non-governmental organizations. www.bwtp.com

Nair, Ajai, (2005). Sustainability of microfinance self-help groups in India: would federating help? Policy Research Working Paper Series, World Bank

Patrick, H., (1966). Financial development and economic growth in underdeveloped countries. Economic Development Cultural Change, 14: 174-189.

Puhazhendi, V., (1995). Transaction costs of lending to the rural poor: non-governmental organizations and self-help groups of the poor as intermediaries for banks in India" (www.bwtp.com)

Rajan, Raghuram, Zingales G. Luigi, (1998). Financial dependence and growth. American Economic Review, 88 (3): 559-586

Ravallion, M., (2001). Growth, inequality and poverty: looking beyond averages, World Development, 29(11): 1803-1815

Sen, Amartya, (2000). Development as freedom, Anchor Books, New York Swamy and Tulasimala: Transaction Costs of Borrowing by the Poor

Srinivasan Girija and Satish, P., (2000). Transaction costs of SHG lending - impact on branch viability. Banker‘s Institute of Rural Development, Lucknow, India

Tankha, Ajay, (2002). Self-help groups as financial intermediaries in India: cost of promotion, sustainability and impact, Sa-Dhan, India

White, H., and Anderson, E., (2001). Growth vs. redistribution: does the pattern of growth matter? Development Policy Review, 19(3): 167-289.

Downloads

Published

05-09-2011

Issue

Vol. 8 No. 3 (2011): International Journal of Banking and Finance (IJBF) Vol. 8, No.3, 2011

Section

Articles

How to Cite

Swamy, V., & Tulasimala, B. (2011). Financial Intermediaries and Economic Development: Evidence on Transaction Costs of Borrowing by the Poor. International Journal of Banking and Finance, 8(3), 54-72. https://doi.org/10.32890/ijbf2011.8.3.3

Research impact

Harvested 2026-09-07
7 citations, from OpenAlex — the highest of the sources checked

Counts differ between services because each indexes a different body of literature. None of them is the whole picture.

Identifiers DOI 10.32890/ijbf2011.8.3.3 OpenAlex W104265567

Most read articles by the same author(s)