I Fiance Apicultural

411
or fiom new borrowers. Moreover, a view prevails that overdue loans
may be considered transfers and not costs of resources employed. But
loan delinquency and the associated costs of' bad debts must not be
ignored because they can adversely affect tile long-rttni viability of tile
RFIs. 'lhe extent of these costs could not be estimateCd ('f this study.
however, bcause the rcquircd(dat. wcre not available. "lercfore it is
urgent that RFIs inprove their data base oil dclimiqucit loans.
The first type of transaction costs-adtinistrative or managerialusually
includes costs of personnel, office space, postage, stationery,
printing, travel, audits, training, and related naintclnance costs. To
make these costs comparable across RFIs within a country or over
variois countries, they imist Ie defined itn unit or percctitage terms, that
is, ini itt (or avcragc) transa,:tion costs. Tius, ill turn, raises a question
about how the total tratsactioll costs should be divided: What should be
the definition of output of RFls? 'The normal conivention is to express
these costs as a (rce iage of loanuable rcsoil tces---I 1at is, oit tlie liabilities
side of the lalaince sheet of ally RFI (Rl'Il 1980; Varde antd Singh
1982, 1983; Veglicse 1983). This iplies tlihat loanable fhinds ate an
out put of* vce'y RFI, but this is itsatisfactorv. F'ollowing the discussion
ill the preceding secliont, output of'an RFI should he defined as all assets
lu)IIS all liabilities for tAso reasons. First,
invCst
IssCt
nints
itenis
are
such
obviously
as loans
tile
and
outputs of"at RFI. And secoid, liabilities
are also an outiput because of the joint tiature of assets and liabilities of
a1 ilistitution such as a fitmacial intIcrimdi;mry. Unit tratsaction costs
ate, therefore, defined as totalt tatlsactiot) costs as a peicentage of' all
liabilities phs assets, excluding conitra itetis sluch ias bills, drafits of
bIanks,
otlie"
and gutaraitccs. Sittilat approaches are found in Cuevas 1984; B.
NI. I)esai 1986); Dcsai, Gupt;, aid Tripatthi 1989; I)esai tn(l Natibooditi
1991; \"irmaiti 19,. This appvtoach is diflereit froi that uised
ili accouttlititg aud financial ialltuagelllicl lileraltie, which deflles a'.eage
tliatsactioi costs as a pct'iccItalge of liabilities. But this call be
derived fiol Ithe estilliate )ased oil the approach used in this study by
simply doubling the cost, since liabilitics equal assets.
After critically but constructively reviewing tlie literature, tille concept
of profitalbility of RFIs needs to be discussed. Il For this, it is
important to recognize that any financial institution has fiiancial
besides
costs
the tratisactioll costs tCquirecd for its busitness. These costs,
the
plus
transaction costs, imake it1) the total costs. To neasure the viability
of a fiiatcial institution, total costs iust be subtracted fiom the RFI's
intetest revet mte fl'oti all loalls plus nonittcrest eveltlle, andInot just
firoti interest revenue fuonl fiarln loas.
These costs and I(veullles ilist l)e ini tttlit lteills. The basic unit
follows
that
fioln the carlicr disctussion of he finitions of o1itpit is derived
f'om all assets plus all liabilities, excluding cott a items. According
this definition,
to
like tratnisaction costs, financial costs and gross t'eveiiC
"This discussion is lestricted to tie concept of viability ill an explicit sense, that is,
without considering tile cost of bad debts, becailse tie available litecature does not deal
witll this subject nor does it piovide the data required.