Collective action among rural poor: Does it enhance financial intermediation by banks for financial inclusion in developing economies?

Abstract

Purpose

The purpose of this paper is to establish the mediating role of collective action in the relationship between financial intermediation and financial inclusion of the poor in rural Uganda.

Design/methodology/approach

The paper uses structural equation modeling (SEM) through bootstrap approach constructed using analysis of moment structures to test for the mediating role of collective action in the relationship between financial intermediation and financial inclusion of the poor in rural Uganda. Besides, the paper adopts Baron and Kenny’s (1986) approach to establish whether conditions for mediation by collective action exist.

Findings

The results revealed that collective action significantly mediates the relationship between financial intermediation and financial inclusion of the poor in rural Uganda. The findings further indicated that the mediated model had better model fit indices than the non-mediated model under SEM bootstrap. Furthermore, the results showed that both collective action and financial intermediation have significant and direct impacts on financial inclusion of the poor in rural Uganda. Therefore, the findings suggest that the presence of collective action boost financial intermediation for improved financial inclusion of the poor in rural Uganda.

Research limitations/implications

The study used quantitative data collected through cross-sectional research design. Further studies through the use of interviews could be adopted in future. Methodologically, the study adopted use of SEM bootstrap approach to establish the mediating effect of collective action. However, it ignored the Sobel’s test and MedGraph methods. Future studies could adopt the use of alternative methods of Sobel’s test and MedGraph. Additionally, the study focused only on semi-formal financial institutions. Hence, further studies may consider the use of data collected from formal and informal institutions.

Practical implications

Policy makers and managers of financial institutions should consider the role of collective action in promoting economic development, especially in developing countries. They should create structures and design financial services and products that promote collective action among the poor in rural Uganda.

Originality/value

Although several scholars have articulated financial inclusion based on both the supply and demand side factors, this is the first study to test the mediating role of collective action in the relationship between financial intermediation and financial inclusion of the poor in rural Uganda using SEM bootstrap approach. Theoretically, the study combines the role of collective action with financial intermediation to promote financial inclusion. Financial intermediation theory ignores the role played by collective action in the intermediation process between the surplus and deficit units.

Citation

Bongomin, G.O.C., Munene, J.C., Ntayi, J.M. and Malinga, C.A. (2019), "Collective action among rural poor: Does it enhance financial intermediation by banks for financial inclusion in developing economies?", International Journal of Bank Marketing, Vol. 37 No. 1, pp. 20-43. https://doi.org/10.1108/IJBM-08-2017-0174