Transaction Cost As Part of Research Proposal

Total Length: 312 words ( 1 double-spaced pages)

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They also may lack traditional forms of "collateral, financial statements, or records in the database of a credit reporting bureau…Lending to, and collecting from, such clients, requires time-consuming personal interaction" (Microcredit, 2009, Microcapital). Lending small sums to many borrowers leads to multiplied administrative costs, and as these borrowers often repay their loans at more frequent intervals, which increases the administrative costs to the lending institution as well.

The potential benefits of microloans to the borrower must be weighted against the inevitability of such high interest rates "It is a simple fact of business that costs must be covered in order to continue operation.

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Further premiums must still be added to the interest rate to account for the many and varied risks assumed by a micro-lender" (Microcredit, 2009, Microcapital).

Reference

Microfinance interest rates as a function of transaction costs. (2006, January 9). Microcapital

Monitor. Retrieved November 22, 2009….....

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