Transaction Cost and the Viability of Rural Financial Intermediaries

Recognition of a continuous improvement in the formal financial system is necessary for economic growth. Over the years, the government has been infusing cheap funds into the rural sector. Unfortunately, it overlooks a number of serious issues regarding bank’s transaction costs. This article develops a method of estimating transaction costs for each bank activity. It also explains the differences and the composition of transaction costs among commercial banks, rural banks and private development banks.