COST OF CREDIT FROM INSTITUTIONAL SOURCES IN BANGLADESH
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This paper seeks to examine, by using survey data, the magnitude and extent of non-interest costs involved in obtaining loans from credit institutions, namely, the Janata Bank, the Bangladesh Jatiya Samabaya Bank (Central Cooperatives), the Integrated Rural Development Programme (IRDP) and the Bangladesh K:ishi Bank (BKB). The study identified four components of transaction costs, viz., i) application fee, stamp and documents required in support of loan ii) form filling and writing iii) conveyancing or cost of traveling for loan negotiation and iv) the cost of entertaining people who assisted in loan negotiation. 'Conveyancing' and `cost of entertaining people' constitute the major portion of total costs in each of the institutions The effective rate of interest for institutional loans stood at Tk. 15.54, Tk. 20.55, Tk. 24.04 and Tk. 21.50 respectively to the borrowers of Janata Bank, Cooperative, IRDP and BKB. It was found that aoa-interest cost of borrowing falls as loan size increases. Since the modal values of loans obtained mostly by small borrowers were smaller compared to average, they had to incur higher non-interest costs.