Transaction costs in group microcredit in India

Existing literature indicates that transaction costs are a major contributor to high interest rates on microcredit loans. A study was conducted using the case study method in order to examine the transaction costs of three established microfinance institutions. Transaction cost includes the costs of group formation, training, appraisal, documentation, disbursement and monitoring. First year and repeat loan transaction costs were studied. Life cycle transaction costs, namely the costs over the group’s life cycle were also examined. Based on the findings, implications for policy makers and microfinance institutions (MFIs) were drawn.