Transaction costs in group microcredit in India

By Savita Shankar. 2007

114 citations recorded by the source corpus.

Purpose – Existing literature indicates that transaction costs are a major contributor to high interest rates on microcredit loans. The purpose of the study was to examine the composition of transaction costs to be able to draw implications on how lending rates in microcredit could be reduced in a sustainable manner.Design/methodology/approach – As the study required in‐depth insights on the processes being followed within a micro finance institution (MFI), the case study method was used. Three established MFIs mainly engaged in microcredit – using group‐lending model – were studied.Findings – The results of the study indicate that the key drivers of direct transaction costs are field worker compensation and number of groups handled per field worker. Collection activity is the single largest contributor.Research limitations/implications – Generalisations based on the case studies should be done with caution.Practical implications – It is suggested that MFIs, in order to reduce direct transaction costs, in...

Subfields: Accounting, Economics and Econometrics, Management Information Systems

View Paper: https://www.semanticscholar.org/paper/3e5736be7a320b8d062cba28c458589ad2c5f094