How does financial literacy impact on inclusive finance?

Morshadul Hasan,Ariful Hoque,Thi Le

doi:10.1186/s40854-021-00259-9

Morshadul Hasan, Ariful Hoque + Show 1 more

Open Access

https://doi.org/10.1186/s40854-021-00259-9

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Journal: Financial Innovation	Publication Date: Jun 3, 2021
Citations: 70	License type: open-access

Affiliation: Murdoch University

Abstract

Inclusive finance is a core concept of finance that makes various financial products and services accessible and affordable to all individuals and businesses, especially those excluded from the formal financial system. One of the leading forces affecting people's ability to access financial services in rural areas is financial literacy. This study investigated the impacts of financial knowledge on financial access through banking, microfinance, and fintech access using the Bangladesh rural population data. We employed three econometrics models: logistic regression, probit regression, and complementary log–log regression to examine whether financial literacy significantly affects removing the barriers that prevent people from participating and using financial services to improve their lives. The empirical findings showed that knowledge regarding various financial services factors had significant impacts on getting financial access. Some variables such as profession, income level, knowledge regarding depositing and withdrawing money, and knowledge regarding interest rate highly affected the overall access to finance. The study's results provide valuable recommendations for the policymaker to improve financial inclusion in the developing country context. A comprehensive and long-term education program should be delivered broadly to the rural population to make a big stride in financial inclusion, a key driver of poverty reduction and prosperity boosting.

Highlights

With the support of inclusive finance, the rural population has contributed significantly to the entire economy’s development (Hasan et al 2020b; Johnston 2005; Le et al 2019; Stein 2010)
Rural people who have better knowledge of financial services s/she has more possibility to be included into formal financial systems
In order to investigate the likelihood of getting financial access, mainly two experimental models were experimented in this study; the logit model, and probit model

Summary

Introduction

With the support of inclusive finance, the rural population has contributed significantly to the entire economy’s development (Hasan et al 2020b; Johnston 2005; Le et al 2019; Stein 2010). Promoting financial services access to inclusive people will deeply connect them with the significant growth of the whole financial systems (Hasan et al 2020b, 2020c; Rashidin et al 2020b). Access to financial services is the most critical factor working behind the financial exclusion of the rural population. Chao et al (2021) mentioned that financial inclusion is deeply connected to poverty reduction. Both formal and informal financial institutions are responsible for providing financial access to those financially excluded people The crucial obstacle of financial inclusion process is financial illiteracy (Bongomin et al 2016a; Grohmann et al 2018; Hasan et al 2020a; Kodongo 2018; Koomson et al 2019; Lyons and Kass-Hanna 2019; Mogilevskii and Asadov 2018; Segre 2018)

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