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Financial Intermediaries and Economic Development – A Study of Transaction Costs of Borrowing for the Poor

  • Swamy, Vighneswara
  • B.K, Tulasimala

This study while validating the increasing role for financial intermediaries in economic development has attempted to highlight the importance of reduction of transaction costs for financial deepening and consequent economic growth. It is elucidated that higher transaction costs of borrowing for the poor in particular will retard the long-term growth of rural financial markets. Further, the empirical analysis based on the primary (survey) data has analysed and established that microfinance models of lending offer considerably lower costs of borrowing than those in regular models of direct lending by banks. The study opines that microfinance model of lending can provide cost-efficient model of financial intermediation for speedy financial development to further economic growth.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 47516.

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Date of creation: Aug 2011
Date of revision:
Publication status: Published in International Journal of Banking and Finance 3.8(2011): pp. 54-72
Handle: RePEc:pra:mprapa:47516
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  1. World Bank, 2001. "World Development Report 2000/2001," World Bank Publications, The World Bank, number 11856.
  2. Ross Levine, 1998. "The legal environment, banks, and long-run economic growth," Proceedings, Federal Reserve Bank of Cleveland, issue Aug, pages 596-620.
  3. Ravallion, Martin, 2001. "Growth, Inequality and Poverty: Looking Beyond Averages," World Development, Elsevier, vol. 29(11), pages 1803-1815, November.
  4. Ross Levine, 1997. "Financial Development and Economic Growth: Views and Agenda," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 688-726, June.
  5. Beck, Thorsten & Levine, Ross & Loayza, Norman, 2000. "Finance and the sources of growth," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 261-300.
  6. Raghuram G. Rajan & Luigi Zingales, 1996. "Financial Dependence and Growth," NBER Working Papers 5758, National Bureau of Economic Research, Inc.
  7. Dollar, David & Kraay, Aart, 2002. " Growth Is Good for the Poor," Journal of Economic Growth, Springer, vol. 7(3), pages 195-225, September.
  8. Levine, Ross, 1999. "Law, Finance, and Economic Growth," Journal of Financial Intermediation, Elsevier, vol. 8(1-2), pages 8-35, January.
  9. Asli Demirgüç-Kunt & Vojislav Maksimovic, 1998. "Law, Finance, and Firm Growth," Journal of Finance, American Finance Association, vol. 53(6), pages 2107-2137, December.
  10. Gonzalez-Vega, Claudio & Schreiner, Mark & Meyer, Richard L. & Rodriguez-Meza, Jorge & Navajas, Sergio, 1996. "Bancosol: The Challenge Of Growth For Microfinance Organizations," Economics and Sociology Occasional Papers 28333, Ohio State University, Department of Agricultural, Environmental and Development Economics.
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