April 21, 2009 (LBO) – Low transaction costs and timely delivery is critical for micro-finance to be effective in lifting poor people out of poverty, a senior Sri Lankan central bank official said. “Experience tells us that micro-finance alone is not enough to eliminate poverty because it only satisfies the funding needs of micro enterprises,” central bank deputy governor W A Wijewardena told an international symposium on microfinance in Colombo.
He said information about the market and consumer needs as well as acceptable business plans were also important for poor entrepreneurs relying on micro-finance.
“Funding is only one aspect. There are a large number of other requirements that need to be met.”
One of the most critical requirements is how to reduce transaction cost, the additional resources which a person has to spend other than that paid to the credit supplier in order to complete the transaction.
These comprise of legal fees, application fees, loan processing fees, taxes, and the opportunity cost for the time spent for pushing the application for a loan through the bureaucracy, Wijewardena said.
High transaction costs associated with borrow