Transaction Cost Determinants of Credit Governance Structures

This book analyzed transaction cost (TC) determinants of credit governance structures (CGS) of commercial banks in developing countries, particularly Tanzania since the amount of transaction cost incurred by banks in supplying credits influences choice of a CGS. With cost efficient CGS, small commercial banks will enter into credit supply business thereby increasing competition, credit accessibility and in turn lower borrowing interest rates. Descriptive statistics, linear regression model, binary and multinomial logistic regression models were employed for analysis. Four modes of credit governance structures that might be used by commercial banks to penetrate rural based credit markets without fear of high transaction costs were revealed. These modes of CGS might also be used to absorb transaction costs in different magnitudes, allow commercial banks credit operations scale up to rural areas and maximize profitability. It was also revealed that, under commercial banks credit operations, credit contract monitoring and enforcement transaction costs were the highest categories of TCs, which is contrary to what suggested by previous authors.