Financial intermediation and financial inclusion of poor households: Mediating role of social networks in rural Uganda

Abstract

The paper examined the mediating role of social networks in the relationship between financial intermediation and financial inclusion of poor households in rural Uganda. The paper used SPSS (statistical package for social scientist) and applied MedGraph program (Excel version 13), Sobel test, and Kenny & Baron guideline to test for the mediating role of social networks in the relationship between financial intermediation and financial inclusion. Quantitative data were collected from a total sample of 400 poor households living in rural Uganda who were randomly selected for this study. The findings revealed that social networks partially mediate in the relationship between financial intermediation and financial inclusion of poor households in rural Uganda. Besides, social networks and financial intermediation have significant and positive impacts on financial inclusion of poor households in rural Uganda. This implies that some effects of financial intermediation on financial inclusion go through social networks to cause an impact on financial inclusion of poor households in rural Uganda. Therefore, financial institutions such as banks and microfinance institutions should develop financial products and services that promote social networking among poor households in rural Uganda. In addition, they should advocate for participation by poor households in existing village associations and social organizations so as to develop wide social networks. This will help them to gain access to scarce and vital information about available financial services like credit.

Keywords:

• financial inclusion
• social networks
• financial intermediation
• rural Uganda
• poor households
• banks and microfinance
• financial intermediaries

Public Interest Statement

World Bank Global Findex Data (2014) indicates that about 3 Billion poor households still remain excluded from access to basic financial services with 80% living in Sub-Saharan Africa. A financial inclusion insights survey revealed that only 11 out of every 100 adults in Uganda have access to a bank account, and only 7 out of every 100 adults are active users of these accounts (FSDU, 2016). Thus, financial inclusion working groups have advocated for improved financial intermediation to provide varieties of financial products that suits the economic status of the poor. The study revealed that social networks boost financial intermediation for better financial inclusion. Therefore, banks should develop financial products that promote social networking among poor households. In addition, they should advocate for participation by poor households in existing village associations and social organizations through which they can gain access to scarce and vital information about availability of financial services.

Additional information

Notes on contributors

George Okello Candiya Bongomin

George Okello Candiya Bongomin holds a PhD, MSc and Bachelor’s degree in Commerce from Makerere University Kampala, Uganda. His research interests are in financial literacy, digital financial services, development finance, business finance, rural finance, behavioural finance, institutional economics and business psychology.

Joseph Mpeera Ntayi

Joseph Mpeera Ntayi, PhD, is a professor of procurement and logistics management at Makerere University Business School, Kampala, Uganda. His research interests are in logistics, financial engineering, entrepreneurship, public procurement, managing contracts, business ethics and supply chain management.

John C. Munene

John C. Munene, PhD, is a professor of psychology and co-ordinator PhD programs, Graduate and Research Centre, Makerere University Business School (MUBS), Kampala, Uganda. His research interests are in industrial and organizational psychology.

Charles Malinga Akol

Charles Malinga Akol, MBA, is a director of currency at Bank of Uganda (BoU) and a part-time lecturer at Makerere University Business School, Kampala, Uganda. He has rich experience in financial management, financial markets, and money & banking.