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This study aims to seek to fill a gap in regulatory impact assessment in developing countries by presenting an analysis of how formal regulation impact on the efficiency and productivity of financial non-governmental organisations (FNGOs) in Ghana. Much has been written about the formal financial sector, but very little is known about the lower end of microfinance and the impact of formal prudential regulation on FNGOs providing microfinance services. The Bank of Ghana (BOG), nevertheless, in the year 2011, extended formal prudential regulation to FNGOs without any empirical basis. This study uses regulatory theories and empirical evidence to aid in the evaluation of whether formal prudential regulation is appropriate for FNGOs operating within the microfinance sector.

Empirical evidence derived from FNGOs, regulatory agents, consumers and financial lawyers within the Greater Accra and Ashanti Regions of Ghana served as the basis of the analysis in this study. Descriptive statistics, frequency counts and percentage scores, were used to analyse the data collected.

The existing structures of FNGOs in Ghana are unsuitable for formal prudential regulation. The BOG does not have adequate staffing and funding to supervise and monitor the microfinance activities of FNGOs. Formal prudential regulation could impede growth and efficient delivery of microfinance services.

The BOG is the only regulatory agency responsible for regulating the financial market in Ghana, thus access to officers with knowledge in the regulatory regime was very limited.

The study revealed in depth information about FNGOs, microfinance and the impact of formal prudential regulation on FNGOs.

The study is the first to use empirical studies and theories of regulation to assess the impact of extending formal prudential regulation to FNGOs in Ghana. Data from the regulator, the regulated and consumers, the key players in any regulatory process, served as the basis of the analysis in the study resulting in the unravelling of in-depth information on the regulation of FNGOs.

Drawing from the fact that institutions act as incentives and disincentives to human behaviour in financial markets, the purpose of this study is to examine the moderating role of institutional pillars in the relationship between financial intermediation and financial inclusion of the poor in rural Uganda.

The study used cross-sectional research design and data were collected from the poor residing in rural Uganda. Statistical package for social sciences was used to analyse the data. Descriptive statistics, correlations and regression analyses were generated. Besides, ModGraph excel programme was adopted to graphically explain the moderating role of institutional pillars in the relationship between financial intermediation and financial inclusion of the poor in rural Uganda.

The results revealed that institutional pillars of regulative (formal rules), normative (informal norms) and cultural cognitive (cognition) significantly moderate the relationship between financial intermediation and financial inclusion of the poor. Furthermore, the results also indicated that financial intermediation and institutional pillars have significant effects on financial inclusion of the poor in rural Uganda.

The study focuses on only cross-sectional design, thus, leaving out longitudinal study. Future research using longitudinal data that explore behaviours of the poor over time could be useful. In addition, only quantitative data were used to measure variables under study and use of qualitative data were ignored. Thus, further studies using qualitative data are feasible.

Policymakers and advocates of financial inclusion in a developing country such as Uganda should adopt institutional pillars (regulative, normative and cultural-cognitive) in promoting financial intermediation in rural areas. The institutional pillars working in combination set the “rule of the game” or “humanly devise constraints” that guide economic exchange by promoting and limiting certain actions of actors in underdeveloped financial market as stipulated by North (1990) and Scott (1995).

To the best of the authors’ knowledge, this is the first attempt to examine the moderating role of institutional pillars under the theory of institutions in the relationship between financial intermediation and financial inclusion of the poor in a developing country setting. Indeed, institutions guide contract enforceability and information sharing in human interaction to lower transaction cost in the financial markets. This is missing in literature and theory of financial intermediation in promoting financial inclusion, especially in rural Uganda.

The purpose of this paper is to establish the mediating role of collective action in the relationship between financial intermediation and financial inclusion of the poor in rural Uganda.

The paper uses structural equation modeling (SEM) through bootstrap approach constructed using analysis of moment structures to test for the mediating role of collective action in the relationship between financial intermediation and financial inclusion of the poor in rural Uganda. Besides, the paper adopts Baron and Kenny’s (1986) approach to establish whether conditions for mediation by collective action exist.

The results revealed that collective action significantly mediates the relationship between financial intermediation and financial inclusion of the poor in rural Uganda. The findings further indicated that the mediated model had better model fit indices than the non-mediated model under SEM bootstrap. Furthermore, the results showed that both collective action and financial intermediation have significant and direct impacts on financial inclusion of the poor in rural Uganda. Therefore, the findings suggest that the presence of collective action boost financial intermediation for improved financial inclusion of the poor in rural Uganda.

The study used quantitative data collected through cross-sectional research design. Further studies through the use of interviews could be adopted in future. Methodologically, the study adopted use of SEM bootstrap approach to establish the mediating effect of collective action. However, it ignored the Sobel’s test and MedGraph methods. Future studies could adopt the use of alternative methods of Sobel’s test and MedGraph. Additionally, the study focused only on semi-formal financial institutions. Hence, further studies may consider the use of data collected from formal and informal institutions.

Policy makers and managers of financial institutions should consider the role of collective action in promoting economic development, especially in developing countries. They should create structures and design financial services and products that promote collective action among the poor in rural Uganda.

Although several scholars have articulated financial inclusion based on both the supply and demand side factors, this is the first study to test the mediating role of collective action in the relationship between financial intermediation and financial inclusion of the poor in rural Uganda using SEM bootstrap approach. Theoretically, the study combines the role of collective action with financial intermediation to promote financial inclusion. Financial intermediation theory ignores the role played by collective action in the intermediation process between the surplus and deficit units.

The purpose of this paper is to establish the relationship between institutional framework of regulative (formal rules), normative (informal norms) and cultural-cognitive (cognition), and their effects on financial intermediation by microfinance deposit taking institutions (MDIs) in developing economies like Uganda.

Data collected from a total sample of 400 poor households and 40 relationship officers located in rural Uganda were processed using statistical package for social sciences and analysis of moment structures to establish the relationship between institutional framework of regulative, normative and cultural-cognitive, and their effects on financial intermediation by MDIs in developing economies.

The results showed that the three dimensions of regulative (formal rules), normative (informal norms) and cultural-cognitive (cognition) significantly affect financial intermediation by MDIs in developing economies like Uganda. In addition, as a unique finding, two new dimensions of procedural and declarative cognition emerged from cultural-cognitive framework to determine financial intermediation among MDIs in developing economies, specifically in Uganda.

The study collected data from only poor households and relationship officers located in rural Uganda. It ignored peri-urban and urban areas in Uganda. In addition, the study focused only on MDIs and ignored other financial institutions. Besides, the study was purely quantitative, therefore, further research through interviews may be useful in future. Furthermore, the study was carried out in rural Uganda as a developing economy. Thus, future research using the same variables in other developing economies may be useful.

Managers of financial institutions and policy makers should know that market functions of financial intermediaries in developing economies are promoted by institutional framework of regulative, normative and procedural and declarative cognition that lowers transaction cost and promotes information sharing. Therefore, more efforts should be directed towards strengthening the existing institutional framework of regulative, normative and cognition to promote financial intermediation by financial institutions such as MDIs.

This paper is the first to test the relationship between institutional framework and their effects on financial intermediation by MDIs in developing economies. The results revealed existence of two new factor structures of procedural and declarative cognition in explaining financial intermediation by MDIs in developing economies like Uganda. This is sparse in financial intermediation literature and theory.

The purpose of this paper is to establish the mediating role of social capital in the relationship between financial intermediation and financial inclusion in rural Uganda.

The current study used cross-sectional research design and a semi-structured questionnaire was used to collect data for this study. The study applied structural equation modeling through bootstrap approach in AMOS to establish the mediating role of social capital in the relationship between financial intermediation and financial inclusion.

The results indicated that social capital significantly mediates the relationship between financial intermediation and financial inclusion in rural Uganda. Therefore, it can be deduced that social capital among the poor play an important role in promoting financial intermediation for improved financial inclusion in rural Uganda.

Although the sample was large, it may not be generalized to other segments of the population. Data were collected from only poor households located in rural Uganda. Besides, the study was cross-sectional, thus, limiting efforts in investigating certain characteristics of the sample over time. Perhaps future studies could adopt the use of longitudinal research design.

Financial institutions such as banks should rely on social capital as a substitute for physical collateral in order to promote financial inclusion, especially among the poor in rural Uganda.

This study provides empirical evidence on phenomenon not studied in rural areas in Sub-Saharan Africa where the poor use social capital embedded in customs and norms for doing business. The results highlight the importance of social capital in mediating the relationship between financial intermediation and financial inclusion of the poor in rural Uganda.

The paper aims to rethink empirical models and theory used in explaining banks and financial institutions (FIs) and to enhance the process of theory construction. This is a provisional response to Colander et al. (2009) and Gendron and Smith-Lacroix’s (2013) call for a new approach to developing theory for finance and FIs.

An embryonic “behavioural theory of the financial firm” (BTFF) is outlined based on field research about banks and FI firms and relevant literature. The paper explores “conceptual connections” between BTFF and traditional finance theory ideas of financial intermediation. It does not seek to “integrate” finance theory and alternative theory in “meta theory” and has a more modest aim to improve theory content through “connections”.

The “conceptual connections” provide a means to develop ideas proposed by Scholtens and van Wensveen (2003). They are part of a “house with windows” intended to provide systematic means to “take data from the outside world” whilst continuously recognising “the complexities of the context” (Keasey and Hudson, 2007) to both challenge and build the core ideas of FT.

The BTFF is a means to create “conversations” between academics, practitioners and regulators to aid theory construction. This can overcome the limitations of such an embryonic theory.

The ideas developed create new opportunities to develop finance theory, propose changes in banks and FIs and suggest changes in the focus of regulation.

Regulators can use the expanded conceptual framework to encourage theory development and to enhance accountability of banks and FIs to citizens.

The purpose of this paper is to analyze the macroeconomic significance of transaction costs in microfinance intermediation and explain how the deposit mobilization and micro lending impact the microfinance transaction costs. It presents some empirical evidence as building blocks for the theory of financial intermediation that aims at strengthening the efficiency of financial intermediation in the context of preferential credit and or the microfinance sector.

The study uses the panel data consisting of different groups of banks in India (such as public sector banks, private banks and foreign banks) data across a period from March 1993 to March 2009 to estimate the panel VAR model to determine the determinants of transaction cost model in financial intermediation. The study also uses the panel Granger causality analysis to test the direction of causation to know the behavior of the operating expense of the banks in their financial intermediation process.

The study reveals that there is a positive direct relationship between operating expense and priority sector lending by banks. The findings show that the transaction costs act as a barrier for the banking firms in microfinance intermediation; and, the banks are able to manage the transaction costs of microfinance intermediation with an increase in overall deposit mobilization and increased non-microfinance lending. The study recommends that there is a need to upscale the functional efficiency of microfinance intermediaries.

This study offers to bridge the research gap and adds novel information to the literature on microfinance intermediation. It is the first empirical paper showing the macroeconomic significance of transaction costs in microfinance intermediation.

The primary objective of this study aims to intensively explore the environment of Indonesian regulations and laws related to the Islamic banking system and micro-, small- and medium-sized enterprises (MSME) and unveil the restrictive laws and regulatory flaws that potentially hinder the Islamic banking institution and MSME industry in achieving financial inclusion and promoting sustainable growth.

This paper implements a qualitative method by implementing a multi-case study research strategy, both from the Islamic banking institutions and the MSME industries. The data were gathered primarily through an interview approach by adopting purposive uncontrolled quota sampling.

The findings of this paper reveal two essential issues: First, the regulatory imbalances and restrictions could demotivate and hinder the efforts of Islamic banks in providing access to finance for the MSME segment, hence, encumbering the achievement of the financial inclusion agenda from the Islamic banking industry. Second, the flaws in MSME registration and taxation might discourage the formal MSMEs from extending their business license and prevent the informal MSME units from registering their business. This issue would potentially lower their chance of accessing external financing from the formal financial institutions and participating in supportive government programmes due to the absence of proper legality.

Since this paper only observed six Islamic banks and 22 MSME units in urban and rural locations in Indonesia using a case study approach, the empirical findings and case discussions were limited to those respective Islamic banks and MSME participants.

By referring to the recommendations as presented in this paper, two critical policy implications could be expected from adopting the proposed recommendations, among others: By addressing the issues of the regulatory imbalance associated with the Islamic banking industry and introduce the deregulatory policies on profit and loss sharing (PLS) scheme implementation, this approach will motivate the Islamic banking industry in serving the MSME sector better and provide greater access to financial services, particularly in using the PLS financing schemes. By resolving the problems on MSME registration and taxation, this strategy will enhance the sustainability of the formal MSMEs’ operation and encourage the informal ones to register, hence, improving their inclusion into the formal financing services and government assistance programmes.

The present study attempts to address the literature shortcomings and helps to fill the gaps – both theoretical and empirical – by incorporating the multi-case study among Indonesian Islamic banks and MSMEs to extensively explore the Indonesia regulatory environment pertaining to the Islamic banking system (supply-side) and MSMEs (demand-side), and thoroughly investigates and reveals the restrictive laws and regulatory flaws that could potentially hinder the Islamic banking institutions and MSME industries in attaining financial inclusion and contributing to sustainable development.

The purpose of this paper is to analyze the impact of the cost of microfinance intermediation on borrowers’ loan size. The identified transaction cost and credit risk factors tell about what a lender takes into accounts while screening and allocating loan amounts to the borrowers, where the lender has limited information about the client’s ability to repay.

The analysis is based on the primary data collected from a sample of 498 microfinance institutions (MFI) linked group clients covering two microfinance leading states of India.

Empirical findings suggest that the cost of microfinance intermediation has an impact on borrowers’ loan size. To reduce the cost, the MFIs lend big loans to clients having a high income, assets, land size, lower informal borrowings and having longer loan experiences. In MFI lending, the younger and less educated people are the ones who demand bigger loan amounts. The geographical distance of borrowers’ location from MFI offices, group size and interest rate are the other factors that influence the loan size.

The past empirical works seem to have not focused on how the cost of microfinance intermediation creates loan size variation among the borrowers in joint liability group lending. The endogeneity problem has not been resolved. The present article thus identifies the factors that influence the individual member loan size by using two-stage least squared regression to tackle the issue of endogeneity.

The study examined the nature of the operation of informal savings groups. Emphasis was on their composition, the mode of financial transactions and sharing of financial proceeds, the impact of the savings and members loaning on the members' financial and business growth, and the perception of the members on the benefits of the savings. The study also profiled the significant challenges encountered by the groups.

The study adopted an exploratory research design. The point of saturation was achieved after 15 members of informal savings groups were interviewed. Data were analyzed using content analysis techniques with the aid of NVivo version 10 software, and verbatim tests were used to explain the emergent themes.

The findings indicate that informal savings groups are accessible, sustainable and inclusive financing alternatives for low-income earners. Group sizes range from 250 to 3 members. As a sign of commitment, a form of identification is required to join the group. Findings also indicate that group leaders are elected, and their term of service could be renewable. It was discovered that members join mainly to save in financial terms, and they have benefited both monetary and socially. The biggest challenge these groups face is that members default.

The study provides evidence that informal financial service providers are an effective alternative to business financing that leverage existing social structures that are predominant in Uganda.

The study provides a benchmark for understanding the dynamics, capabilities and challenges impeding the survival and growth of informal savings groups as critical components in Uganda's financial system.