The transaction costs of lenders and borrowers in a Brazilian microcredit organization

Cristina Fachini, Denise Benetti Ramirez and Roberto Arruda De Souza Lima
Savings and Development Vol. 32(2008), No. 4, pp. 381-407

One of the main obstacles for the expansion of microcredit availability is the high transaction costs of credit operations for both lenders and borrowers. In order to decrease transaction costs; institutions adopt the solidarity groups lending system in order to transfer transaction costs to the group; making it assume a large amount of the risk. However; in Brazil; there are several microcredit institutions; such as Banco do Povo-Crédito Solidário; Vivacred; and others; which still adopt the individual credit lending system; instead of the solidarity system; and there are hardly any studies about the transaction costs to either the institutions or the borrowers. The objective of this work is to investigate the transaction costs of short-term operations in Banco do Povo-Crédito Solidário in the city of Santo André and its outskirts. Banco do Povo adopts the solidarity lending system in only 5% of its loans – a very low percentage; which makes the transference of transaction costs impossible. Information shows that individual credit operations are effectively very costly for the bank and they do not affect costumers’ loan significantly. We verified that individual loans are more interesting in urban areas with lower social capital; whereas in rural areas; the solidarity system is more attractive.

Article Full Text

Issue: 2008 XXXII 4
Contributors: Arruda De Souza Lima, Roberto   Benetti Ramirez, Denise   Fachini, Cristina   
Keywords: , ,