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

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.