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.

Citation

Okello Candiya Bongomin, G., Ntayi, J.M., Munene, J.C. and Nkote Nabeta, I. (2016), "Social capital: mediator of financial literacy and financial inclusion in rural Uganda", Review of International Business and Strategy, Vol. 26 No. 2, pp. 291-312. https://doi.org/10.1108/RIBS-06-2014-0072