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

25 Pages Posted: 9 Aug 2012

Date Written: August 8, 2012

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.

Keywords: Transaction Costs, Banks, Microfinance, Nonprofit Institutions, NGOs, Economic Development, Financial Markets, Savings, Institutions and Growth

JEL Classification: D23, G21, L31, O16, O43

Suggested Citation

P.M., Vighneswara Swamy and Tulasimala, B., Financial Intermediaries and Economic Development – A Study of Transaction Costs of Borrowing for the Poor (August 8, 2012). Available at SSRN: https://ssrn.com/abstract=2126810 or http://dx.doi.org/10.2139/ssrn.2126810

Vighneswara Swamy P.M. (Contact Author)

IBS-Hyderabad ( email )

62, Nagarjuna Hill
Panjagutta
Hyderabad, TX AP 501504
India

B. Tulasimala

University of Mysore ( email )

Manasagangothri
Mysore
India

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