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An analysis of transaction costs of Islamic banks in rural Iran

Author

Listed:
  • 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)

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.

Suggested Citation

  • S. Safdar Hosseini & Mohammed Khaledi & Richard Gray, 2009. "An analysis of transaction costs of Islamic banks in rural Iran," Agribusiness, John Wiley & Sons, Ltd., vol. 25(3), pages 291-313.
    • Handle: RePEc:wly:agribz:v:25:y:2009:i:3:p:291-313
    DOI: 10.1002/agr.20211
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    References listed on IDEAS

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    2. Adams, Dale W., 1982. "Physical Examinations for Rural Financial Markets in Low Income Countries," Research Bulletins 181958, Cornell University, Department of Applied Economics and Management.
    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. Datta, Samar K., 2003. "An Institutional Economics Approach to the Problems of Small Farmer Credit in India," IIMA Working Papers WP2003-07-01, Indian Institute of Management Ahmedabad, Research and Publication Department.
    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.
    6. 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 631-640, April.
    7. Untalan, Teodoro S. & Cuevas, Carlos E., 1989. "Transaction Cost and the Viability of Rural Financial Intermediaries," Philippine Journal of Development JPD 1989 Vol. XVI No.1-b, Philippine Institute for Development Studies.
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