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Transaction cost determinants of credit governance structures of commercial banks in Tanzania

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  • Nguvava, Heriel
  • Ngaruko, Deus

Abstract

This paper explores transaction cost determinants of credit governance structures (CGS) of commercial banks in Tanzania. Descriptive statistics, linear regression model, binary and multinomial logistic regression models were employed for analysis. Findings revealed four modes of credit governance structures that are used by commercial banks to penetrate rural based credit market without fear of high transaction costs. These modes of CGSs might be used to absorb transaction costs in different magnitudes, allow commercial banks credit operations scale up to rural areas and maximize profitability. The most important TC determinants include high illiteracy rate (lack of entrepreneurial and financial management skills), poor infrastructures, unclear political will and commitment towards rural development, culture barrier (poor tradition and customs) and lack of national identification system. It was also revealed that, under commercial banks credit operations in Tanzania, credit contract monitoring and enforcement transaction costs were the highest categories of TCs, which is contrary to what suggested by previous authors.

Suggested Citation

  • Nguvava, Heriel & Ngaruko, Deus, 2016. "Transaction cost determinants of credit governance structures of commercial banks in Tanzania," African Journal of Economic Review, African Journal of Economic Review, vol. 4(2), July.
    • Handle: RePEc:ags:afjecr:264464
    DOI: 10.22004/ag.econ.264464
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