Determinants of Financial Inclusion: The Interplay between Financial Literacy, Financial Knowledge, and Financial Institutions

Abstract

 The present research is aimed at identifying the factors influencing financial inclusion through analyzing the joint impact of financial knowledge, financial literacy, and institutional access. The sample of the study included 6,204 observations collected among individuals from the NFWBS data set and 9,023 observations of firms from the SME data set. To estimate financial inclusion, a Financial Inclusion Index was constructed based on such measures as financial well-being, saving behavior, and financial planning. Based on the descriptive statistics, financial inclusion turned out to be moderate, evidenced by the average scores of financial well-being equal to 56.03, saving behavior equal to 4.37, and financial planning equal to 0.62. Regarding financial literacy at the firm level, the mean values equaled 3.19 (accounting), 3.19 (budgeting), 4.06 (investment evaluation), and 3.41 (credit knowledge), and 61.21% of the sample used digital finance. In turn, the regression analysis showed the positive but weak effect of financial knowledge on financial inclusion and the stronger and more significant effect of financial literacy. Institutional access also had a significant effect and, moreover, moderated the effect of financial literacy on financial inclusion.