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An analysis of transaction costs of Islamic banks in rural Iran

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  • S. Safdar Hosseini

    (Department of Agricultural Economics, University of Tehran, Karaj, Iran)

  • Mohammed Khaledi

    (Agricultural Research and Education Organization (AREO), Rural Research Institute, Tehran, Iran)

  • Richard Gray

    (Department of Bioresource Policy, Business and Economics, University of Saskatchewan, Saskatoon, Canada)

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    Abstract

    This study measures transaction costs of obtaining credit from Islamic banks. Data were collected from rural households in Iran. The factors affecting transaction costs and the probability of accessing Islamic financial markets are investigated. Similar to conventional financial institutions found in other developing countries, Iranian banks impose high transaction costs that limit poor rural household access to credit. The results reveal that the transaction costs of gaining credit are on average equivalent to an additional 13.8% annual interest cost. The contractual form, the size of credit, the borrower distance from a financial center, and the experience and education level of the borrower are important determinants of the transactions costs. [EconLit Citations: D230, R510, G210]. © 2009 Wiley Periodicals, Inc.

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    File URL: http://hdl.handle.net/10.1002/agr.20211
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    Bibliographic Info

    Article provided by John Wiley & Sons, Ltd. in its journal Agribusiness.

    Volume (Year): 25 (2009)
    Issue (Month): 3 ()
    Pages: 291-313

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    Handle: RePEc:wly:agribz:v:25:y:2009:i:3:p:291-313

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    Web page: http://onlinelibrary.wiley.com/journal/10.1002/(ISSN)1520-6297

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    1. John Freebairn & Bill Griffiths, 2006. "Introduction," The Economic Record, The Economic Society of Australia, vol. 82(s1), pages S1-S1, 09.
    2. Saito, Katrine Anderson & Villanueva, Delano P, 1981. "Transaction Costs of Credit to the Small-Scale Sector in the Philippines," Economic Development and Cultural Change, University of Chicago Press, vol. 29(3), pages 631-40, April.
    3. Liedholm, Carl, 1985. "Small Scale Enterprise Credit Schemes: Administrative Costs and the Role of Inventory Norms," Food Security International Development Working Papers 54746, Michigan State University, Department of Agricultural, Food, and Resource Economics.
    4. Adams, Dale W. & Vogel, Robert C., 1986. "Rural financial markets in low-income countries: Recent controversies and lessons," World Development, Elsevier, vol. 14(4), pages 477-487, April.
    5. Aggarwal, Rajesh K & Yousef, Tarik, 2000. "Islamic Banks and Investment Financing," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(1), pages 93-120, February.
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