Search results

This study aims to examine the impact of market competition, and capital regulation on the cost of financial intermediation of banks of the Bangladesh banking industry.

This study has used a balanced panel dataset comprised of 340 firm-year observations for 34 commercial banks in the Bangladesh banking industry from 2011 to 2020. The Prais Winsten panel estimator has been used to assess the impact of market competition and capital regulation on the cost of financial intermediation of banks.

Based on the regression results, this study has documented that greater market competition results in a lower cost of financial intermediation for banks. Similarly, an increase in the regulatory capital of banks increases the cost of financial intermediation of banks. The main findings of this study are found robust by using alternative proxies for the cost of financial intermediation, market competition and capital regulation. The regression results also suggest that private commercial banks tend to have a higher cost of financial intermediation than state-owned commercial banks.

The regulatory reforms should aim to foster sustainable and optimal market competition for the Bangladesh banking industry to regulate the market power of banks to reduce the cost of financial intermediation. The regulatory authority of Bangladesh should find the optimal policy measures for implementing the capital regulation in the banking industry which would reduce the cost of financial intermediation margin of banks.

Unlike previous studies which have used structural market competition measures, this study has used non-structural market competition measures to assess the relationship between market competition and cost of financial intermediation in the Bangladesh banking industry.

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.

Asymmetric information impedes the efficiency of financial intermediation by widening the gap between lending and deposit rates. The cost of information gathering is high and often translates into high borrowing costs. Consequently, high borrowing costs may make it hard for borrowers to repay loans and increase the volume of non-performing loans – a recipe for financial instability. This study first compares the application of the simple GARCH (1,1) and BGARCH (1,1,1) models in the estimation of macroeconomic volatility and finds that the latter is more suitable for this purpose. Moreover, the choice of BGARCH (1,1,1) over the simple GARCH (1,1) implies different outcomes for Granger causality tests. This finding implies that the BGARCH (1,1,1) model minimises loss of important information when estimating macroeconomic volatility in developing countries. Second, the study uses bootstrap panel Granger causality to test the hypothesis that there is a causal relationship between financial instability and the financial intermediation spread in Southern African Customs Union (SACU). The findings support this hypothesis and underscore the importance of implementing sound macroeconomic policies for high and stable growth as well as effective monetary policy to attain and maintain low and stable prices in order to narrow the financial intermediation spread in SACU. The paper aims to discuss these issues.

This study uses bootstrap panel Granger causality to test the hypothesis that there is a causal relationship between financial instability and the financial intermediation spread in SACU.

The findings support this hypothesis and underscore the importance of implementing sound macroeconomic policies for high and stable growth as well as effective monetary policy to attain and maintain low and stable prices in order to narrow the financial intermediation spread in SACU.

Application of panel bootstrap Granger causality test to test for a casual relationship between financial intermediation spread and financial stability in the context of SACU.

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 paper examined the mediating effect of social capital in the relationship between social intermediation and financial services in Ugandan micro finance industry. The purpose of this paper is to establish the role of social capital in the relationship between social intermediation and financial services access.

The paper adopted the MedGraph program, Sobel tests and Kenny and Baron approach to test for mediation effects.

It is clear that the true drivers of access to financial services in the micro finance industry are social intermediation and social capital. However, social capital exhibits partial form of mediation in the relationship between social intermediation and access to financial services.

A single research methodological approach was employed in the study. Owing to limitations associated therein, future research through interviews could be undertaken to triangulate.

Since social capital is found to be a causal chain in the relation between social intermediation and financial serves access in this study, managers in the micro finance industry should endeavor to reinforce agents of social capital (i.e. trust and social networks) since the lending relationships between the micro‐finance operators and marginalized communities are driven by social collateral.

This is the first study that focuses on testing the mediating effect of social capital in the relationship between social intermediation and financial services access in the Ugandan microfinance industry.

This study seeks to investigate the impact of financial intermediation on economic growth in Turkey using annual data spanning 1970–2017.

Based on the results of the augmented Dickey–Fuller and Phillips–Perron unit root tests for stationarity, the authors employ the Autoregressive Distributed Lag (ARDL) bounds testing to cointegration to establish the long-run impact of financial intermediation alongside other control factors on economic growth. The study also examines the short-run relationship between financial intermediation and economic growth by estimating the Error Correction Model (ECM).

The authors’ findings indicate that financial intermediation significantly influences economic growth in both short and long run. However, the effect is positive only in the short run, lending support to the supply-leading hypothesis. Regarding the control variables, the authors observe that while financial openness shows a positive significant impact on economic growth in the long run, gross fixed capital formation matters only in the short run. The results further infer that regardless of the time period, inflation impedes economic growth.

In the empirical analysis of the relationship between financial intermediation and economic growth, financial intermediation is always measured using a single variable. The authors argue that such studies could produce bias and misleading results given that a single proxy does not adequately reflect financial intermediation activities. Likewise, such findings may delude policy implementation. To provide a more vivid and robust analysis, the authors employ the Principal Component Analysis (PCA) to construct a composite index for financial intermediation based on three broad measures. The researchers’ are unaware of any study on the financial intermediation–economic growth nexus using a composite index of financial intermediation. Thus, this paper fills this lacuna in the literature.

The purpose of this paper is to present a holistic approach for measuring overall bank efficiency and its decomposition in intermediation and operating efficiencies.

Recently developed two-stage network data envelopment analysis model by Liang et al. (2008) has been used for obtaining intermediation and operational efficiencies along with overall bank efficiency. The bootstrapped truncated regression algorithm as proposed by Simar and Wilson (2007) has been employed to explore the influential determinants of intermediation and operating efficiencies.

The empirical results reveal that the operating inefficiency is the dominant source of overall bank inefficiency in Indian banking sector. Another interesting finding is that public sector banks are more efficient than private banks in the intermediation stage of production process, while private banks are more efficient in the operating stage of production process. Finally, the results of bootstrapped truncated regression show that variations in intermediation efficiency are explained by bank size, liquidity position, directed lending and intermediation cost, while inter-bank differences in operating efficiency are influenced by profitability and income diversification.

The most significant practical implication that has been derived from the research findings is that at the industry level, overall efficiency enhancement needs improvement both in terms of resource-utilization and income-generating abilities of the banks. However, the relatively easy way to achieve higher bank efficiency is to improve the efficiency of banks in generating incomes from interest and fee-based sources.

This paper is the first to provide a comprehensive assessment of performance of Indian banks by examining the efficiency of individual banks considering both the intermediation and operating approaches simultaneously.

The purpose of this study is to investigate the effect of financial intermediation functions of banks on economic growth in sub-Saharan Africa.

The study employs data from 11 sub-Saharan African countries over the period 1970–2016. Using broad money supply, bank credit to the private sector and bank deposits as financial intermediation measures, the authors apply the random effects (RE) technique based on the recommendation of the Breusch–Pagan test.

The results show that except for bank deposits, broad money supply and bank credit to the private sector significantly influence economic growth. While broad money has a negative relationship with growth, bank credit to the private sector and bank deposits are positively correlated with economic growth.

The relationship between financial intermediation and economic growth remains unsettled, as results vary across countries. Besides, in developing countries' perspective, extant studies are largely focused on individual countries to investigate the financial intermediation-growth nexus. In this study, the authors take a different direction by employing a panel approach and thus adding to the few cross-country studies on the subject matter. Also, unlike other studies that have focused on a single indicator of financial intermediation, this study uses three indicators of financial intermediation which broadly reflect the intermediation functions of banks.

The purpose of this paper is to examine the impact of trade openness on the cost of financial intermediation and bank performance. Developed and developing countries are currently pursuing trade openness to achieve higher bank performance with less intermediation costs.

In attaining the study's objectives, several regression methodologies were employed (i.e. system generalized method of moments (GMM), fixed effect, pooled ordinary least squares (OLS) and vector error correction model (VECM)). The authors tested the hypothesis on data of 885 banks from BRICS countries, which span 18 years (2000–2017).

The results from this robust study showed that embedding higher trade openness reduces financial intermediation costs and improves banks' performance. The results remain robust following the use of different estimation methods and alternative variables as proxies. In addition, results were still valid upon considering bank level, industry level and country level as control variables. It was also observed that the relation pattern holds its rigidity during “good” and “bad” times (i.e. the global financial crisis).

The results provide better references for bank regulators, academics and policymakers to take advantage of the low financial intermediation costs resulting from trade openness.

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.