African Journal of Economic Review

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Transaction cost determinants of credit governance structures of commercial banks in Tanzania

Heriel Nguvava, Deus Ngaruko


This paper explores transaction cost determinants of credit governance structures (CGS) of commercial banks in Tanzania. Descriptive statistics, linear regression model, binary and multinomial logistic regression models were employed for  analysis. Findings revealed four modes of credit governance structures that are  used by commercial banks to penetrate rural based credit market without fear of  high transaction costs. These modes of CGSs might be used to absorb transaction  costs in different magnitudes, allow commercial banks credit operations scale up to  rural areas and maximize profitability. The most important TC determinants include  high illiteracy rate (lack of entrepreneurial and financial management skills), poor  infrastructures, unclear political will and commitment towards rural development,  culture barrier (poor tradition and customs) and lack of national identification  system. It was also revealed that, under commercial banks credit operations in  Tanzania, credit contract monitoring and enforcement transaction costs were the highest categories of TCs, which is contrary to what suggested by previous authors.

Key words: Transaction costs, credit governance structures, commercial banks, Tanzan

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