Transaction cost determinants of credit governance structures of commercial banks in Tanzania
DOI:
https://doi.org/10.61538/ajer.v4i2.451Abstract
This paper explores transaction cost determinants of credit governance structures (CGS) of commercial banks in Tanzania. Descriptive statistics, linear regression model, binary and multinomial logistic regression models were employed for analysis. Findings revealed four modes of credit governance structures that are used by commercial banks to penetrate rural based credit market without fear of high transaction costs. These modes of CGSs might be used to absorb transaction costs in different magnitudes, allow commercial banks credit operations scale up to rural areas and maximize profitability. The most important TC determinants include high illiteracy rate (lack of entrepreneurial and financial management skills), poor infrastructures, unclear political will and commitment towards rural development, culture barrier (poor tradition and customs) and lack of national identification system. It was also revealed that, under commercial banks credit operations in Tanzania, credit contract monitoring and enforcement transaction costs were the highest categories of TCs, which is contrary to what suggested by previous authors.References
Aikaeli,J (2008). Commercial banks efficiency in Tanzania, CSAE conference, st. catherine’s college, oxford.
Alchian, Armen. 1977. Some implications of recognition of property rights transaction costs.In Economics and Social Institutions journal, edited by Karl Brunner. Boston: Martinus Nighoff Publishing.
Allen, Douglas W. (1991). What are transaction costs?Research in Law and Economics 14: 1-18.
Allen, Douglas W. (2000). Transaction costs. In Encyclopedia of Law and Economics, Vol. 1, edited by Boudewijn Bouckaert and Gerrit De Geest. Edward Elgar.
Arrow, Kenneth J. (1969). The organization of economic activity: issues pertinent to the choice of market versus nonmarket allocation. In The Analysis and Evaluation of Public Expenditures: the PBB System, Joint Economic Committee Compendium, 91st Congress, 1st Section, Vol. 1. Government Printing Office: Washington, D.C.
Baker, R., Charnes, A., and W. Cooper (1984). Some Models for Estimating Technical and Scale
Inefficiencies in Data Envelopment Analysis. Management Science journal, Vol. 30, No. 9, pp. 1078-1092.
Baltensperger, E. (1972). Economies of Scale, Firm Size, and Concentration in Banking, Journal of Money, Credit and Banking, Vol. 4, No. 3, pp. 467-488.
Bank of Tanzania (various 1997-2013). Annual Report. Dar es Salaam
Barzel, Yoram. (1985). Transaction costs: are they just costs?Journal of Institutional and Theoretical Economics 141: 4-16.
Benham, Alexandra and Benham. (1998). Measuring the costs of exchange. Manuscript. Washington University in St. Louis.
Berger, A. N., and D. B. Humphrey (1997). Efficiency of Financial Institutions: International Survey and Directions for Future Research. Working Papers Wharton School, University of Pennsylvania.
Berger, A. N., William, H., and T. Stephen (1993). The Efficiency of Financial Institutions: A Review and Preview of Research Past, Present, and Future. Journal of Banking and Finance, Vol. 17, pp. 221-249.
Brighouse, D. (2001). The Financial Services Environment; An Advanced Guide to Financial Institutions and their Regulation. CIB Publishing Canterbury
Brown, J. D. (2001).Using Surveys in Language Programs. Cambridge: Cambridge University Press
Charnes, A., Cooper, W., and E. Rhodes (1978). Measuring the Efficiency of Decision Making Units.European Journal of Operational Research, Vol. 6, pp. 429-444.
Clarke, G. et al. (2001). Foreign Bank Entry: Experience, Implications for Developing Countries, and Agenda for Further Research. World Bank Working Paper series 2698.
Debreu, G. (1959).Theory of value, an Axiomatic Analysis of Economic Equilibrium. John Wiley, New York.
Dornyei, Zoltan. (2007).Research Methods in Applied Linguistics: Quantitative, Qualitative and Mixed Methodologies. 1st Edition. Oxford: Oxford University Press.
Drake, L. and R. Simper (2002). Economies of Scale in UK Building Societies: A Reappraisal Using an Entry/Exit Model. Journal of Banking and Finance, Vol. 26, pp. 2365- 2382.
Ernst&Young, (2010), Tanzania banking sector performance review report
Farrell, M. J. (1957). The Measurement of Productivity Efficiency. Journal of the Royal
FSDT (2011). The agricultural finance markets scoping of Tanzania. A survey report
Finscope (2013). Demand for and access to financial services. Tanzania survey report.
Green W. (2003).Econometric Analysis. Prentice-Hall, New York. Fifth Edition.
Hirshleifer J. and A. Glazer (1993).Price Theory and Applications. Prentice-Hall of India, New Delhi, Fifth Edition.
Howard, M. and H. Haynes (2001).Commercial Banks Efficiency in Barbados. Savings and Development, Vol. 25, No. 3.
Igwe and Egbuson (2013).Determinants of transaction costs for borrowers among farmers in Ikwuano, local government area, in Abia state Nigeria, American Journal of Rural Development, 2013 1 (5), pp 116-120
Ikhide, S. (2000). Efficiency of Commercial Banks in Namibia. BON Occasional Paper No.4
IMF-World Bank (2003). Tanzania: Financial System Stability Assessment, Including Reports on the Observance of Standards and Codes on Banking Supervision, IMF Publications.
Kamala, D (2000) The Analysis of the Performance of Rural/ Micro financial Institutions in Tanzania.Uongozi-Journal of Management Development Vol. 12(1) 120-140
Kibassa (2012). The role of small and micro enterprises on government revenue: Journal of economics and sustainable development. Vol 3. No 8. 2012. Netherlands
Kimei, C.S.(2002); The Role of Commercial Banks in Rural Finance: The Case for Tanzania; Paper presented at the East African Sub-regional Workshop on the "Role of Commercial Banks in Rural Finance", Arusha, Novotel April 22-23.
Kothari, C.R. (1990) .Research Methodology: Methods and Techniques. H.S. Poplai, 2nd Edition.
Kuzilwa, J. A. (2002) .The Role of Credit for Small Business Success: A Study of the National Entrepreneurship Development Fund in Tanzania. A Paper Presented at the 6th Annual International Conference on Entrepreneurship and Small Business Development (ICAESB), White Sand Hotel, Dar es Salaam.
Kuzilwa, J.A.& MushiE.K (1997). Credit Needs For Small Business. The Tanzanian Banker Journal. Issue No. 9, pp. 13-16, June.
Leibenstein, H. (1966). Allocative Efficiency versus ‘X-efficiency. American Economic Review, Dec., pp. 1252-1258.
Lindley, J. et al. (2000). Excess Reserves During the 1930s:mpirical Estimates of the Cost of Converting Unintended Cash Inventory into Income Producing Assets. Macon State College Paper.
Maddala, G. S. (1983).Limited-Dependent and Qualitative Variables in Econometrics. Cambridge University Press.
Masco-Colell, A. et al. (1995).Microeconomic Theory, 1st edition. Oxford University Press.
Maximambali, F et al (1999). Research on Client Exits (Dropouts) From Tanzanian MicroFinance Institutions. Dar Es Salaam
Mitchell, K. and N. M. Onvural. (1996). Economies of Scale and Scope at Large Commercial Banks: Evidence from the Fourier Flexible Functional Form, Journal of Money, Credit and Banking, Vol. 28, pp:178-197.
Mkenda, Campenhout, (2011). Estimating transaction costs in Tanzanian supply chains, the international growth center (IGC) Tanzania.
Myers, S. and R. Rajan (1995). The Paradox of Liquidity. NBER Working Paper No. 5143.
Oppenheim, A. N. (1992).Questionnaire Design, Interviewing and Attitude Measurement. London: Pinter Publishers Limited.
Parisio, L. (1992). Economies of Scale and Scope in the Italian Bank Industry: Evidence from Panel Data. Rivisita Internazionale di Scienze Economiche e Commerciali, Vol. 39, pp.959-78.
Rubambey, G.C. (2002); Challenges of Rural Finance Policy Making, Paper presented at the East African Sub-Regional Workshop on the "Role of Commercial Banks in Rural Finance, Arusha, Novotel, April 22-23.
Schenk, R. (2004). What is Economic Efficiency? Journal of Economic Education.
Seymour, Sudman and Norman M. Bradburn. Asking Questions. San Francisco: Jossey-Bass, 1983.
The United Republic of Tanzania: Ministry of Finance (2000). The National Microfinance Policy
United Nations Development Programme. (1999). Microfinance Essentials: A synthesis of lessons learned. Evaluation Office, No.3 December 1999
Wangwe (2004). Innovation in rural finance, third annual conference on microfinance, AICC, Arusha.
