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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 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 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.

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.

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 examine the extent to which social intermediation influences access to financial services in Uganda's microfinance industry.

The paper adopts analysis of moment structures (AMOS), a form of structural equation modeling (SEM) to test hypotheses.

It was established that social intermediation together with antecedents of social capital and managerial competence, account for 32 percent of the variance in access to financial services in the microfinance industry.

Only a single research methodological approach was employed and future research through interviews could be undertaken to triangulate. Furthermore, the findings from the present study are cross-sectional, future research should be undertaken to examine the social intermediation and its effects on access to financial services across time.

In order to boost the wealth of the active poor and microfinance institutions in Uganda, Uganda should always endeavor to build the human and institutional capacities through social intermediation so as to encourage the marginalized people to fully participate in formal financial intermediation in the microfinance industry.

This is the first study that focuses on testing the influence of social intermediation on access to financial services in Uganda's microfinance industry.

The aim of this research is to compare the differences of intermediation, fee-based service activity and efficiency of conventional banks vs Islamic banks in Indonesia for the 2011-2013 period. Moreover, this study also includes some control variables to find their effect on the dependent variables.

This research uses two methods, namely, stochastic frontier approach and panel data regression.

The result indicates that Islamic banks have a higher intermediation ratio, have higher proportion on fee income-to-total operating income and are less efficient. The control variable that has a positively significant effect on intermediation ratio is size; meanwhile, inefficiency and non–loan-earning asset are negatively affecting the intermediation ratio. The control variable that show a positively significant effect on the proportion of fee income-to-total operating income is size; meanwhile, the credit risk variable has no significant effect on the proportion of fee income-to-total operating income. Size and credit risk are the control variables that have a negative relation to efficiency.

This study has significantly contributed to Indonesian Islamic banking based on which the Islamic banking manager should recognize that the intermediation level, fee-based service activity and efficiency are crucially important in establishing competition and maintaining sustainable Islamic banking.

The purpose of this paper is to present an analysis of the size of the banking sectors in central and Eastern European (CEE) countries. The banking sectors' ability is focused to provide financial intermediation between savers and investors in the economy.

The existing literature on banking in transition economies argues in unison that banking sectors in CEE countries are too small and do not provide sufficient levels of financial intermediation. In this paper, a common drawback of the existing measures used to indicate the size of CEE banking sectors is detected: they all relate the volume of bank intermediation to gross domestic product (GDP). It is argued that since transition economies have a low stock of financial wealth relative to economic activity, a more objective measure of the size of the banking sector is the ratio of bank assets to a proxy of the stock of financial wealth rather than to GDP.

There is evidence that the estimation of the size of the banking sectors relative to GDP produce downward biased measures for the ability of CEE banks to intermediate available financial resources. When the size of the banking sector is measured relative to financial wealth, the gap between the developed European Union banking systems and those of the CEE countries is not as severe as argued in studies based on the traditional approach of measuring the size of the banking system with respect to GDP.

Using the downward biased measure of financial system development to stress the underdevelopment of the financial intermediation in CEE may produce misleading policy recommendations, e.g. recommendations in the direction of rapid financial system expansion by lowering barriers of entry for new banks. The authors' new measure presents an alternative that should be considered by policy makers in the design of measures promoting financial system development.

The paper challenges the existing consensus on severe underdevelopment of the CEE banking sectors. It presents a new approach of accessing financial system development in emerging economies.

The distinctive feature of Islamic financial intermediation is its foundation on profit-and-loss sharing which reinforces solidarity and fraternity between partners. Thus, the bank margin and its determinants may differ between Islamic and conventional banks (CBs). The purpose of this paper is to empirically assess the main factors that explain the bank margin in a panel of Islamic and CBs operating in the Middle East and North Africa (MENA) region. This study will permit to identify the common and the specific determinants of the intermediation margins in dual banking systems.

The authors use a dynamic panel approach. The empirical analysis is carried out for a sample of 50 Islamic banks (IBs) and 126 CBs from 14 MENA countries.

The results reveal that net profit margins of IBs may be explained for the most part by risk aversion, inefficiency, diversification and economic conditions. With regard to CBs, their margins depend positively on market concentration and risk aversion and negatively on specialization, diversification, inefficiency and liquidity.

The significant impact of the degree of diversification on margins suggests that any policy analysis of the pricing behavior of banks should rely on its whole output. The high levels of margins in Islamic and CBs based in the MENA region may represent an obstacle to these countries to pursue their development process. Thus, policy makers in these countries should consolidate the role of capital markets and nonbanking financial institutions to provide alternative sources of funding and stimulate more competition.

The positive relationship between concentration and net interest margins requires that policy makers should create competitive conditions if they want to lower the social cost of financial intermediation. The creation of competitive conditions may be achieved through encouraging the establishment of new domestic banks or the penetration of foreign banks.

The present study aims to contribute to the existing literature on the determinants of bank margins in three ways. First, the authors identify the factors that most explain bank margins for both conventional and IBs. The majority of previous studies examine the determinants of the profitability or the overall performance of banks and in particular conventional ones. Second, this paper employs two generalized method of moments (GMM) approaches introduced by Arellano and Bover (1995) and Arellano and Bond (1991). It differs from Hutapea and Kasri (2010) who employed the co-integration technique to examine the long-run relationship between Islamic and CB margins and their determinants in Indonesia. Third, unlike previous studies focusing on MENA region that use a small number of countries and a short sample period, the period of study covers 16 years from 1999 to 2014 and a large sample of countries (14 countries). This paper differs from Lee and Isa (2017) who applied the dynamic two-step GMM estimator technique introduced by Arellano and Bond (1991) to study the determinants of intermediation margins of Islamic and CBs located in Malaysia.