Examining the role of financial intermediaries in promoting financial literacy and financial inclusion among the poor in developing countries: Lessons from rural Uganda

Abstract

The main purpose of this study is to establish the mediating role of financial intermediaries in the relationship between financial literacy and financial inclusion of the poor in developing countries with data from rural Uganda. The data for this study were analyzed using Partial Least Square (PLS). The results revealed that financial intermediaries significantly mediates the relationship between financial literacy and financial inclusion. The presence of financial intermediaries such as microfinance banks enhance financial literacy to increase the scope of financial inclusion of the poor in rural Uganda. Thus, policy makers and advocates of financial literacy, especially in developing countries should use financial intermediaries such as microfinance banks to roll out financial literacy programs. This can be achieved through provision of financial literacy clinics, workshops and seminars where the poor can learn about personal finance using hands-on approach. This will help them to make wise financial decisions and choices towards consumption of complex financial products offered by the rural-based financial institutions.

Keywords:

• microfinance banks
• financial literacy programs
• financial inclusion
• developing countries
• poor households
• financial decisions and choices

PUBLIC INTEREST STATEMENT

The Organization for Economic Cooperation and Development (OECD) observes that the level of financial literacy still remains low globally with majority of the population, especially in developing countries unable to compute interest rates. Similarly, the provision of more complex financial products by financial institutions to the poor who are financially illiterate has made them more vulnerable to unscrupulous providers of financial services. Thus, there is dire need for financial literacy to help the poor to make wise financial decisions. Consequently, financial intermediaries such as microfinance banks that link the surplus and deficit units, especially in the rural areas can act as channels for delivering financial literacy. Indeed, financial literacy clinics, workshops, and seminars can be conducted by financial intermediaries to equip the poor with knowledge and skills to make wise financial decisions and choices.

Additional information

Funding

The authors received no direct funding for this research.

Notes on contributors

George Okello Candiya Bongomin

George Okello Candiya Bongomin holds a PhD, MSc (Accounting and Finance) and Bachelor’s degree in Commerce from Makerere University Kampala, Uganda. He is a Research Fellow at Faculty of Graduate Studies and Research, Makerere University Business School, Kampala, Uganda and an international financial inclusion scholar. His research interests are in financial inclusion. George Okello Candiya Bongomin is the corresponding author and can be contacted at: [email protected]

John C. Munene

John C. Munene, PhD., is a professor of psychology and Coordinator PhD Programmes, Faculty of Graduate Studies and Research, Makerere University Business School, Kampala, Uganda. His research interests are in industrial and organizational psychology.

Pierre Yourougou

Pierre Yourougou PhD., is a professor of finance and banking. He is Deputy Director General of the National Polytechnic Institute Félix Houphouet-Boigny, Côte d’Ivoire in charge of International Cooperation and Development of the Yamoussoukro Technopole. His research interests are in financial inclusion, development finance, banking and finance, and international cooperation.