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.
Highlights
IntroductionA cleric is an unwanted intermediary in the path towards the divine
For a rationalist, a cleric is an unwanted intermediary in the path towards the divine
This study attempts answer the question like: (1) what are these costs for a borrowing poor. (2) how significant are these for the poor in making a decision for borrowing from institutional source or informal source? The study has drawn extensively on recent literature on self-help groups (SHGs) and microfinance in ascertaining the different dimensions of transaction costs SHG bank linkage program and other methods of lending in the SHG movement
Summary
A cleric is an unwanted intermediary in the path towards the divine. In view of the enormous socio-economic importance of financial intermediaries in rural finance in the context of a developing economy, this study points to an increasing role of financial intermediaries much beyond the traditional viewpoint of information asymmetries and transaction costs. Given these new evolving economic scenarios, this study intends to analyse and discuss the role of intermediation in the contemporary context. There is the necessity to sustain efficient financial intermediaries
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