I Fiance Apicultural

40
First, this approach is inconsisteit with policy concerns about viability
aild the transaction costs of an institlition rather than consideration
of a single product, stuch as lending. 12 Second, it asstliles that all
transaction costs call be attriluted 1t.lending, which cannot be done
without borrowing firoin soiiiewhere. Third, it does not recognize that
produicts of financial institutions are multiple and joint. Examples of
multiple prodttcs inclhde different types of loans, deposits, share capital,
and tonfuind-based credit. Examiples ofjoint prodtcts are increased
lending related to increased deposits, refinancing provided only after
lending, and borrowing by RFIs from a central financing agency of their
own fulds or soie proportion of their loan recoveries or their performalice
in deposit mobilization. Fourth, transaction costs are collillioll to
all these activities and hence tlhir allocatioi to various activities is
ari)itiary and difficlilt. 13 Fifth, sonic of the studies that have the above
liiiitatiolis defilit avi;tge transactioni costs as a percentage of loals
iiade to fiimiers or the ,iliiler of iiccotiits of fiu-uer loaits, while
others consider this cost as a 1 ercelitage of oulsalildiig balances of'
fariier loans. Finally, estimiation of ilitse costs and the scale economies
illtihen are highly sensitive to the defiuition of output of illRFI.
E.stiiated palan tTers of' econtlOiet ric cost fnlictions are also cliarac­
terized by this weakness. These sttidies therefore cainot be compared.
As many as 18 out of 22 have these limitations.
An obvious conclusion is lhat the issue of transaction costs of
institltional Ileu heis iiist Ibe co itice tI) ii aize I and measured for all activi­
ties of RFIs, rather tliai for oily oiliactivity such as making farm loans
or colk'cting deposits. I lence, these costs and their ,ieasutes in idts or
percentages uitist )e pro)ely specified.
Definitions and Concepts of
Transaction Costs and Viability of RFIs
Trtansaction costs are of' two types: administrative costs and the cost of
bad debts. The former is addressed more coiiiprelietmsively, though it
does not tunderplay tile itportanice of tile latter. I loweve,, the high
shares of overduet loans and the implied bad debts suggested in some
studies grossly overstatc tIle prol)lem. This is because tile measure of
loan deliuqueicy and the implication that the supply of credit is re­
straited as a i-eslilt of unpaid loaiis (toes not allow for such factors as
loans repaid after a reasonalble period past the maturity date, age of
overduies, tnsatisfactomy loau appraisal and recovery policies and proce­
(ires, and demauds for loans fron borrowers with genuine delinquency
1 2 Thesc citics also share the view that tie viability 0 an RFI is the basic ,ssuc. According
to analysis of most of the other issues by ihese critics, they consider .tfinancial
intermediary as a unit of analysis of conceptualization (Adams and Kato 1978; Cuevas
19841; Von Pischke,.Adams, and Donald 1983).
"Thtisis also trte fo, traditional moneylenders who also undertake nonlending activities
such as trading and hiring Labor.