Financial intermediation and financial inclusion of the poor

George Okello Candiya Bongomin, John C. Munene, Joseph Mpeera Ntayi and Charles Akol Malinga

International Journal of Ethics and Systems, 2018, vol. 34, issue 2, 146-165

Abstract: Purpose - Drawing from the fact that institutions act as incentives and disincentives to human behaviour in financial markets, the purpose of this study is to examine the moderating role of institutional pillars in the relationship between financial intermediation and financial inclusion of the poor in rural Uganda. Design/methodology/approach - The study used cross-sectional research design and data were collected from the poor residing in rural Uganda. Statistical package for social sciences was used to analyse the data. Descriptive statistics, correlations and regression analyses were generated. Besides, ModGraph excel programme was adopted to graphically explain the moderating role of institutional pillars in the relationship between financial intermediation and financial inclusion of the poor in rural Uganda. Findings - The results revealed that institutional pillars of regulative (formal rules), normative (informal norms) and cultural cognitive (cognition) significantly moderate the relationship between financial intermediation and financial inclusion of the poor. Furthermore, the results also indicated that financial intermediation and institutional pillars have significant effects on financial inclusion of the poor in rural Uganda. Research limitations/implications - The study focuses on only cross-sectional design, thus, leaving out longitudinal study. Future research using longitudinal data that explore behaviours of the poor over time could be useful. In addition, only quantitative data were used to measure variables under study and use of qualitative data were ignored. Thus, further studies using qualitative data are feasible. Practical implications - Policymakers and advocates of financial inclusion in a developing country such as Uganda should adopt institutional pillars (regulative, normative and cultural-cognitive) in promoting financial intermediation in rural areas. The institutional pillars working in combination set the “rule of the game” or “humanly devise constraints” that guide economic exchange by promoting and limiting certain actions of actors in underdeveloped financial market as stipulated byNorth (1990)andScott (1995). Originality/value - To the best of the authors’ knowledge, this is the first attempt to examine the moderating role of institutional pillars under the theory of institutions in the relationship between financial intermediation and financial inclusion of the poor in a developing country setting. Indeed, institutions guide contract enforceability and information sharing in human interaction to lower transaction cost in the financial markets. This is missing in literature and theory of financial intermediation in promoting financial inclusion, especially in rural Uganda.

Keywords: Institutional pillars; Financial intermediaries; Poor households; Rural Uganda; Regulative pillar; Rule of the game (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijoesp:ijoes-07-2017-0101

DOI: 10.1108/IJOES-07-2017-0101

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