I Fiance Apicultural

5
Transaction Costs,
Profitability, Economies
of Scale, and Their Effects
on Development
ransaction costs, defined later in this chapter, are largely under
tie control of rural financial institutions. Subsequent chapters
show that the level of interest rates influences the level of investmnert
in rural development. Since transaction costs help determine
interest rates, either directly through competitive market forces or
through their influence on the administrative setting of lending rates, it
is important to measure theim and to understand what determi lnes them.
A substantial amount of recent literature argues that because transaction
costs in low-income countries are high and rising, RFIs are generally
not profitable, and they have contributed little or even negatively to
agricultural development (Adams and Kato 1978; Alined and Adatns
1987; Cuevas 1 9 87a; Von Pisclike, Adams, and Donald 1983). Analysis in
this chapter is organized around the following information:
" Importance of the issue of the transaction costs involved in lending
to farmers vis-,¥vis all other activities of RFIs;
* Definitions and concepts regarding these costs and their relation
to the viability of RFls;
* Cross-national comparison of transaction costs on a comparable
basis; and
* Transaction costs of selected RFIs, scale relationships, and viability,
and the developtmental accomplishments of RFIs in various
countries.
Importance of Considering
Transaction Costs for All
Activities of RFIs
Some critics of past agricultural credit policy have exclusively dealt with
the transaction costs involved when RFIs lend to farmers (Ahmed and
Adams 1987; Cuevas 9 8 1 7
a, 1987b; Ctievas and Graham 1984; Gadgil
1986; Gheen 1976; Meyer and Srinivasan 1987; Meyer, Baker, and
Onchon 1979; Nyanin 1982; Saito and Villanueva 1981; Srinivasan and
Meyer 1986). There are severe limitations to this approach.
39