![]() Instead, we held a monthly meeting where clients gathered to present their booklets and receive their incentive money. To check these booklets we would have to visit 20 people in the pilot program which could take one to three days of work and a lot of house calling. Each client carried a booklet that the bank stamped every time she deposited. #TRANSACTION COST FREE#The best part was that to the client it looked like we were giving them free money when in fact we were covering the cost of them using our program.įinally, the Enforcement costs were easy. Hence, we provided an incentive of $1.04 for every deposit made, sent directly to their account. We asked ourselves, how much does it take a community member to make one deposit in their account? To take the bus from the rural area to the town center cost $0.52 one-way - $1.04 both ways. Then we moved on to the Bargaining costs. Then we set the first incentive at $5 to cover most of the cost so the client received the money up front upon opening the account. We documented what IDs and opening balances they required. Having found the TRC we got out our TRC hammer and started busting. This could take almost an entire day and cost, by our estimates, anywhere from $6.50 to $10. To open an account, potential savers had to find a bank, provide identification, and cover the minimum balance. The Search costs were some of the highest. To decide how much we should pay in incentives, we looked at how much one transaction cost the client. Basically, we paid people to save in an account instead of hiding it under their mattress. We listened to what they had to say and designed a system around it called the Incentivized Savings Program that rewarded people for saving with a bank and building their assets. The low-income families we serve had been calling for a savings program. In 2016, we designed a new program here at La Ceiba Microfinance that perfectly illustrates TRC busting. The TRC approach is much easier to understand in an example. However, the beneficiaries also accrue costs as they deal with your oversight and frequent visits. The third TRC, Enforcement costs, are more on your end as you keep the program well oiled and make sure it has the desired effect. Rural farmers, for example, will have to identify and navigate your agricultural program, costing them time and possibly money. Remember that these are from the beneficiary’s point of view. Search Costs come from trying to find and identify the service, while Bargaining Costs are what’s sacrificed in order to use it. There are three types of TRCs you’ll find embedded in the joints of your program. One of these barriers that needs deleting is transaction costs. Doing so reveals what needs to be added or deleted to make it easier for beneficiaries to engage in programs and escape poverty. In short, if NGOs look through the lens of the beneficiaries in the grassroots movements, they could better see the barriers to development from their point of view. Part of the idea was to make us, the institutions creating the rules and the programs, listen to the communities calling for changes. A few decades later in 1992, Douglas North applied the idea to economic development, demonstrating how a better understanding and accountability to TRCs could boost economic growth. So what are TRCs and how can we find them? Robert Coase introduced TRCs in 1960 as any costs incurred during an economic exchange. This can include opportunity costs, inefficiencies, and any other debris stuck in the joints of your program. The more micro-costs your beneficiaries have to swallow to use the service you provide, the less likely they are to do it and the less likely you are to succeed. The same concept applies to NGOs and their programs. This can be in time, effort, and sometimes money. Imagine that you’re a marketing agent working for a website: the more clicks it takes for a customer to reach the desired information, the more it costs them to use your site. If your area of focus isn’t economic development, there may still be hidden TRCs embedded in your work. Basic measurements like transaction costs (TRCs) can illuminate small inefficiencies in almost any program. Thinking like an economist doesn’t have to be as tedious as the college course you took that one time. To make and maintain development programs at the grassroots level we need to have a lot of tools in our toolkit and one of those should be transaction costs. ![]()
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