Social capital: mediator of financial literacy and financial inclusion in rural Uganda

Abstract

Purpose The purpose of this paper is to examine the mediating role of social capital in financial literacy and financial inclusion relationship in rural Uganda. The major aim is to establish the role of social capital in the relationship between financial literacy and financial inclusion. Design/methodology/approach The paper adopts and uses MedGraph programme (Excel version 3.0), Sobel and Kenny and Baron tests to test the mediation effect of social capital in the relationship between financial literacy and financial inclusion. Findings The results reveals that social capital is a significant mediator in the relationship between financial literacy and financial inclusion of rural poor in Uganda. Financial literacy did not have a direct effect on financial inclusion, but through full mediation of social capital. Existence of social capital into the relationship boosts the relationship between financial literacy and financial inclusion by 61.6 per cent among rural poor households in Uganda. Thus, the finding suggests that with the absence of social capital, financial literacy may fail to enhance the level of financial inclusion among rural poor households in Uganda. Research limitations/implications This study adopted only single research approach using a questionnaire. However, future research through interview may be of importance. Besides, for the purpose of triangulation, a study involving financial institutions’ staff may be viable. Moreover this study was limited by the fact that it was cross-sectional. Furthermore, a longitudinal study may be useful in future to investigate the mediating impact of social capital spanning over a long period of time. Practical implications Managers, policymakers and financial inclusion practitioners should advocate and embark on building social capital among rural communities, so as to improve on the level of financial inclusion. Originality/value While a large body of research has been carried out on financial literacy, this paper is the first to test the mediating role of social capital in the relationship between financial literacy and financial inclusion, especially in rural Uganda. This study generates evidence and contributes to the powerful influence of social capital in enhancing the level of financial inclusion based on financial literacy.

Moderating effects of social learning on the usage of formal financial services in Kampala, Uganda

“…Policymakers, service providers, and financial educators ought to take cognizance of social influences to promote financial inclusion in countries like Uganda. This recommendation supports Okello et al (2016), who found that financial literacy alone had no significant impact on financial inclusion but rather that social capital's introduction fully mediated the relationship between financial literacy and financial inclusion in rural Uganda. Bandura (1986) postulates that learning also occurs when people, through interactions, observe others, imitate them, and seek to model specific behaviors, our results highlight the importance of social interactions in synthesizing knowledge on formal financial products, before actual product uptake.…”

“…In agreement, Idris et al (2013) found that financial literacy accounted for variations in individual behavior and financial outcomes associated with credit, investment, and saving behaviors. Literature is also replete with findings on significant relationships established between financial literacy and the broader concept of financial inclusion (Okello et al, 2016;Grohmann et al, 2017). These studies support Wachira and Kihiu (2012) findings, who established a higher probability for people with lower levels of financial literacy to have a higher likelihood of financial exclusion.…”

Perspective of Financial Literacy on Agribusiness Performance in Uganda; A Close Look at Farmers’ Attitude and Social Media Platforms

“…The inaccessibility to formal financial services negatively impacts livelihoods in Uganda by increasing transaction costs and risks, limited market exchange and limiting opportunities for households to save. Therefore according to Okello, Ntayi, Munene and Nabeta [5], the absence of effective social capital financing in Uganda, financial literacy mail fails to enhance the level of financial inclusion among rural households. Thus the need for all economic planning to be future based signifying that food security matters are sustainable for every community leading to self-reliance.…”

“…For example, when young adults (ages [18][19][20][21][22][23][24] in the United States of America were asked the high-school level course that most benefited their lives, more than 50% responded in favor of "money management". Georgia, Idaho, and Texas mandated financial education; after three years of implemention, all the three observed increment in credit scores and lower delinquency rates within credit accounts [5]. Thus, constructive individual and institutional research has emphasized need for financial literacy to a code culture status across businesses [6].…”

The Levels of Financial Literacy in Kampala, Uganda: A comparative analysis using objective and subjective measures

“…There have not been adequate studies to determine individual levels of financial literacy in Uganda. A few studies such as Bongomin et al (2017) examined the components of financial literacy, while Bongomin et al (2016) assessed the mediating effects of social capital on the relationship between financial literacy and financial inclusion. Kasalirwe & Lokina (n.d) evaluated the levels of financial literacy and its impact on investment choices in Uganda.…”