Nexus between Financial Literacy and Financial Inclusion with the Mediating Role of Social Networks

Abstract

This study examines the relationship between Financial Literacy (FL) (financial knowledge, attitude, and skill) and Financial Inclusion (FI) using the mediating effects of Social Networks (SNs). FI ensures that people have access to financial goods and services whereas FL assures that people are aware of these products and services. The data for this particular research is collected directly from the customers of microfinance institutions (MFIs) through a structured questionnaire. The convenience sampling approach is used to get the questionnaire filled from the customers. 420 customers of MFIs are the respondents to the study. Partial Least Square (PLS) Structural Equation Modeling (SEM) data analysis technique is used to assess the relationship among the variables involved. The results reveal that FL has direct significant effects on FI except for the dimension of attitude. The finding also shows that SNs fully mediate the nexus between FL and FI. This study is limited to the customers of microfinance banks. However, prospective research may include customers of commercial banks. SNs serve as a channel for transferring financial information, hence also increasing people's FI.