Analyzing the relationship between financial literacy and financial inclusion by microfinance banks in developing countries: social network theoretical approach
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Date
2020
Journal Title
Journal ISSN
Volume Title
Publisher
International Journal of Sociology and Social Policy
Abstract
The main purpose of this study is to establish the mediating effect of social network in the
relationship between financial literacy and financial inclusion of the poor by microfinance banks in developing
countries.
Design/methodology/approach – The study adopted a cross-sectional research design and data were
collected from the poor who resides in rural Uganda. Structural equation modelling (SEM) through analysis of
moment structures (AMOS) was used to analyze the data. Bootstrap approach with 5,000 samples was run to
establish the mediating effect of social network in the relationship between financial literacy and financial
inclusion of the poor by microfinance banks in developing countries.
Findings – The results showed that social network significantly and positively mediate the relationship
between financial literacy and financial inclusion of the poor by microfinance banks in developing countries. In
addition, financial literacy also has a direct significant and positive effect on financial inclusion. Overall, the
findings suggest that the presence of social network fully mediate the effect of financial literacy on financial
inclusion of the poor by microfinance banks in developing countries.
Research limitations/implications – This study adopted a cross-sectional research design and data were
collected using a semi-structured questionnaire. Future studies could adopt longitudinal research design to
establish the dynamic characteristics of the samples under study over time. Besides, this study collected data
from only poor households who were clients of microfinance banks located in rural Uganda. It ignored the other
section of the population who were not the poor. Therefore, future studies could use the other section of the
population who are clients of commercial banks.
Practical implications – The advocates of financial literacy and managers of microfinance banks in
developing countries should ensure using existing local structures such as community and village associations
to conduct financial literacy training. The village associations help in mobilizing members who are close-knit
based on the existing societal ties that can be used as a channel for disseminating vital financial literacy
information. Indeed, financial literacy workshops, seminars, and business clinics can be easily conducted to
individuals who are members of the village associations.
Originality/value – This paper integrates social network theory in the relationship between financial literacy
and financial inclusion of the poor by microfinance banks in developing countries. Social network acts as a
conduit through which financial knowledge and skills flow to increase the scope of financial inclusion of the
poor in developing countries.
Description
Keywords
Social network theory, Financial inclusion, Financial education, Rural poor households, Rural Uganda, Microfinance banks
Citation
Bongomin, G. O. C., Ntayi, J. M., & Malinga, C. A. (2020). Analyzing the relationship between financial literacy and financial inclusion by microfinance banks in developing countries: social network theoretical approach. International Journal of Sociology and Social Policy. DOI 10.1108/IJSSP-12-2019-0262