Institutional framing and financial inclusion Testing the mediating effect of financial literacy using SEM bootstrap approach
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Date
2017
Authors
Okello Candiya Bongomin, George
Mpeera Ntayi, Joseph
Munene, John C.
Journal Title
Journal ISSN
Volume Title
Publisher
International Journal of Social Economics
Abstract
The purpose of this paper is to establish the mediating effect of financial literacy in the
relationship between institutional framing and financial inclusion among poor households in Uganda with a
specific focus on Mokono district.
Design/methodology/approach – The study adopted a cross-sectional design. Data were analyzed using
structural equation modeling (SEM), which adopted Analysis of Moment Structures to test for mediating
effect of financial literacy in the relationship between institutional framing and financial inclusion.
Findings – The results revealed that financial literacy had a partial mediating effect in the relationship
between institutional framing and financial inclusion. Furthermore, the results indicated that while
institutional framing has a direct effect on financial inclusion, it also exerts an indirect effect through financial
literacy. This supports the argument that institutional framing that structure the way how poor households
interpret, evaluate, comprehend and make sound financial decisions and choices, is enhanced by knowledge
and skills acquired through financial literacy by poor households.
Research limitations/implications – This study has been limited by adopting only cross-sectional design
and quantitative research approach, therefore ignoring longitudinal design and qualitative research
approach. Besides, the study uses SEM bootstrap approach and ignores MedGraph method, which is also
recommended for testing mediation.
Practical implications – Since the results suggest that institutional framing of poor households are
partially enhanced by financial literacy to increase financial inclusion, policy makers, practitioners and
managers of financial institutions should ensure extending financial literacy programs closer to the poor in
order to expand the scope of financial inclusion beyond the current sphere. Indeed, financial literacy programs
will boost cognitive abilities of poor households resulting into better financial decisions and choices and,
hence increase in demand and consumption of financial services.
Originality/value – The study significantly generates empirical evidence by testing the mediating
role of financial literacy in the relationship between institutional framing and financial inclusion using SEM
bootstrap approach. The study portrays the influential partial effect of financial literacy in enhancing
institutional frames of poor households in order to cause improvement in financial inclusion.
Indeed, financial literacy programs that entail acquisition of financial knowledge and skills boost
cognitive abilities of poor households to easily interpret, evaluate, comprehend meanings, and take correct
decisions and actions on financial matters. The mediating effect of financial literacy in the relationship
between institutional framing and financial inclusion seems to be lacking in literature and theory. Thus,
the paper is the first to relate the influential partial effect of financial literacy in the relationship
between institutional framing and financial inclusion among poor households, especially in a developing
country context.
Description
Keywords
Microfinance, Uganda, Structural equation modeling, Financial literacy, Financial inclusion, Institutional framing, Rural poor households
Citation
Bongomin, GOC, Ntayi, JM, & Munene, JC (2017). Institutional framing and financial inclusion: Testing the mediating effect of financial literacy using SEM bootstrap approach. International Journal of Social Economics . DOI 10.1108/IJSE-02-2015-0032