Empowering Sustainable Development: The Role of Financial Literacy and Social Capital in Bridging Financial Inclusion in Developing Nations.

Resham Iftikhar; Muhammad Ashfaq; Shamim Akhtar; Stephanie Efua Frimpong

doi:10.62270/jirms.v5i2.79

Authors

Resham Iftikhar PhD Scholar, Department of Business Administration, Faculty of Management and Administrative Sciences, University of Sialkot, Pakistan
Muhammad Ashfaq PhD Scholar, Department of Business Administration, Faculty of Management and Administrative Sciences, University of Sialkot, Pakistan
Shamim Akhtar Assistant Professor, Department of Business Administration, Faculty of Management and Administrative Sciences, University of Sialkot, Pakistan https://orcid.org/0000-0002-3274-6507
Stephanie Efua Frimpong Department of Finance, University of Cape Coast, Ghana

DOI:

https://doi.org/10.62270/jirms.v5i2.79

Keywords:

Financial Inclusion, Social Capital, Financial Literacy, developing economy

Abstract

Purpose- This paper investigates how financial inclusion impacts sustainable development in Pakistan, with financial literacy and social capital as mediators. The purpose is to explore whether these factors are connected and what this link means for more inclusive and sustainable growth.

Study Design/methodology/approach – A quantitative research design was adopted, which was based on data gathered through a structured questionnaire survey of 488 banking customers in Pakistan. Data were analyzed through structural equation modeling (SEM) using PLS4-SEM software to assess the direct and indirect relationships between financial inclusion, social capital, financial literacy, and sustainable development.

Findings- The findings suggest that financial inclusion positively and significantly impacts sustainable development. Financial literacy and social capital are demonstrated to play a mediating role in enhancing the pathway between financial inclusion and sustainable development. The findings show that increased financial inclusion improves financial literacy and social capital, hence promoting better economic, social, and environmental sustainability outcomes.

Research limitations/implications – This study adds to the insights of the policymakers and financial institutions that help achieve sustainable development goals (SDGs). Its major implication for policymakers and financial institutions in Pakistan is that strategies that will lead towards enhancing access to banking services, promoting more financial literacy initiatives, and developing social cohesion are essential drivers of inclusive and sustainable development in Pakistan.

Research Practical Implications- The study advocates for corporate governance reforms and policy interventions to prioritize human talent capital investments. Financial strategies such as maintaining liquidity and managing leverage are recommended to stabilize firm volatility.

Originality/value- This research contributes to the existing literature by providing a detailed analysis of the synergistic relationship between financial inclusion, social capital, and financial literacy in the context of sustainable development. It offers a robust empirical framework for addressing development challenges in emerging economies, focusing on actionable strategies for achieving SDGs.

References

Abbasi, K. R., Hussain, K., Haddad, A. M., Salman, A., & Ozturk, I. (2022). The role of financial development and technological innovation towards sustainable development in Pakistan: fresh insights from consumption and territory-based emissions. Technological Forecasting and Social Change, 176, 121444. DOI: https://doi.org/10.1016/j.techfore.2021.121444

Akhtar, S., Cui, Y., Frimpong, S., & Rafi, N. (2024). Unlocking the path to sustainable competitive performance of agro-based small and medium enterprises: Evidence from the South Asian Association for Regional Cooperation countries. Agric. Econ.–Czech, 70, 309-319. DOI: https://doi.org/10.17221/264/2023-AGRICECON

Akhtar, S., & Liu, Y. (2018). SMEs’ use of financial statements for decision making: Evidence from Pakistan. Journal of Applied Business Research, 34(2). DOI: https://doi.org/10.19030/jabr.v34i2.10138

Alaimo, L. S., Ciacci, A., & Ivaldi, E. (2021). Measuring sustainable development by non-aggregative approach. Social Indicators Research, 157, 101-122. DOI: https://doi.org/10.1007/s11205-020-02357-0

Alshebami, A. S., & Aldhyani, T. H. (2022). The interplay of social influence, financial literacy, and saving behaviour among Saudi youth and the moderating effect of self-control. Sustainability, 14(14), 8780. DOI: https://doi.org/10.3390/su14148780

Atmaca, A. C., Kıray, S. A., & Pehlivan, M. (2019). Development of a measurement tool for sustainable development awareness. International Journal of Assessment Tools in Education, 6(1), 80-91. DOI: https://doi.org/10.21449/ijate.518099

Bhandari, B. S. (2018). Life insurance-social security & financial inclusion. Bimaquest, 18(2).

Bongomin, G. O. C., Munene, J. C., Ntayi, J. M., & Malinga, C. A. (2018). Exploring the mediating role of social capital in the relationship between financial intermediation and financial inclusion in rural Uganda. International Journal of Social Economics, 45(5), 829-847. DOI: https://doi.org/10.1108/IJSE-08-2017-0357

Cámara, N., & Tuesta, D. (2014). Measuring financial inclusion: A muldimensional index. BBVA Research Paper(14/26). DOI: https://doi.org/10.2139/ssrn.2634616

Castells‐Quintana, D., Royuela, V., & Thiel, F. (2019). Inequality and sustainable development: Insights from an analysis of the human development index. Sustainable Development, 27(3), 448-460. DOI: https://doi.org/10.1002/sd.1917

Demirgüç-Kunt, A., Klapper, L., Singer, D., & Ansar, S. (2022). The Global Findex Database 2021: Financial inclusion, digital payments, and resilience in the age of COVID-19. World Bank Publications. DOI: https://doi.org/10.1596/978-1-4648-1897-4

Demirgüç-Kunt, A., Klapper, L. F., & Singer, D. (2013). Financial inclusion and legal discrimination against women: evidence from developing countries. World Bank Policy Research Working Paper(6416).

Demirgüç-Kunt, A., & Singer, D. (2017). Financial inclusion and inclusive growth: A review of recent empirical evidence. World Bank Policy Research Working Paper(8040). DOI: https://doi.org/10.1596/1813-9450-8040

Enowbi Batuo, M., & Asongu, S. A. (2015). The impact of liberalisation policies on income inequality in African countries. Journal of Economic Studies, 42(1), 68-100. DOI: https://doi.org/10.1108/JES-05-2013-0065

Fornell, C., & Larcker, D. F. (1981). Evaluating structural equation models with unobservable variables and measurement error. Journal of marketing research, 18(1), 39-50. DOI: https://doi.org/10.1177/002224378101800104

Ghosh, S., & Vinod, D. (2017). What constrains financial inclusion for women? Evidence from Indian micro data. World Development, 92, 60-81. DOI: https://doi.org/10.1016/j.worlddev.2016.11.011

Goyal, K., & Kumar, S. (2021). Financial literacy: A systematic review and bibliometric analysis. International Journal of Consumer Studies, 45(1), 80-105. DOI: https://doi.org/10.1111/ijcs.12605

Hair, J., Hollingsworth, C. L., Randolph, A. B., & Chong, A. Y. L. (2017). An updated and expanded assessment of PLS-SEM in information systems research. Industrial management & data systems, 117(3), 442-458. DOI: https://doi.org/10.1108/IMDS-04-2016-0130

Hair, J. F., Risher, J. J., Sarstedt, M., & Ringle, C. M. (2019). When to use and how to report the results of PLS-SEM. European business review, 31(1), 2-24. DOI: https://doi.org/10.1108/EBR-11-2018-0203

Henseler, J., Hubona, G., & Ray, P. A. (2016). Using PLS path modeling in new technology research: updated guidelines. Industrial management & data systems, 116(1), 2-20. DOI: https://doi.org/10.1108/IMDS-09-2015-0382

Hussain, A., Oad, A., Ahmad, M., Irfan, M., & Saqib, F. (2021). Do financial development and economic openness matter for economic progress in an emerging country? Seeking a sustainable development path. Journal of Risk and Financial Management, 14(6), 237. DOI: https://doi.org/10.3390/jrfm14060237

Kemal, A. A. (2019). Mobile banking in the government-to-person payment sector for financial inclusion in Pakistan. Information Technology for Development, 25(3), 475-502. DOI: https://doi.org/10.1080/02681102.2017.1422105

Khaki, A., & Sangmi, M.-u.-D. (2016). Financial inclusion & social capital: a case study of SGSY beneficiaries in Kashmir Valley. Khaki, AR, & Sangmi, M.(2016). Financial Inclusion & Social Capital A Case Study of SGSY Beneficiaries in Kashmir Valley. Independent Journal of Management & Production, 7(4), 1005-1033. DOI: https://doi.org/10.14807/ijmp.v7i4.424

Khan, I., Khan, I., Sayal, A. U., & Khan, M. Z. (2022). Does financial inclusion induce poverty, income inequality, and financial stability: empirical evidence from the 54 African countries? Journal of Economic Studies, 49(2), 303-314. DOI: https://doi.org/10.1108/JES-07-2020-0317

Kim, D.-W., Yu, J.-S., & Hassan, M. K. (2018). Financial inclusion and economic growth in OIC countries. Research in International Business and Finance, 43, 1-14. DOI: https://doi.org/10.1016/j.ribaf.2017.07.178

Kou, G., Olgu Akdeniz, Ö., Dinçer, H., & Yüksel, S. (2021). Fintech investments in European banks: a hybrid IT2 fuzzy multidimensional decision-making approach. Financial innovation, 7(1), 39. DOI: https://doi.org/10.1186/s40854-021-00256-y

López, T., & Winkler, A. (2019). Does financial inclusion mitigate credit boom-bust cycles? Journal of Financial Stability, 43, 116-129. DOI: https://doi.org/10.1016/j.jfs.2019.06.001

Lowry, P. B., & Gaskin, J. (2014). Partial least squares (PLS) structural equation modeling (SEM) for building and testing behavioral causal theory: When to choose it and how to use it. IEEE transactions on professional communication, 57(2), 123-146. DOI: https://doi.org/10.1109/TPC.2014.2312452

Luetz, J. M., & Walid, M. (2019). Social responsibility versus sustainable development in United Nations policy documents: a meta-analytical review of key terms in human development reports. Social responsibility and sustainability: How businesses and organizations can operate in a sustainable and socially responsible way, 301-334. DOI: https://doi.org/10.1007/978-3-030-03562-4_16

Lusardi, A., & Mitchell, O. S. (2011). Financial literacy around the world: an overview. Journal of pension economics & finance, 10(4), 497-508. DOI: https://doi.org/10.1017/S1474747211000448

Lusardi, A., & Mitchell, O. S. (2014). The economic importance of financial literacy: Theory and evidence. American Economic Journal: Journal of Economic Literature, 52(1), 5-44. DOI: https://doi.org/10.1257/jel.52.1.5

Mehrotra, A. N., & Yetman, J. (2015). Financial inclusion-issues for central banks. BIS Quarterly Review March.

Morgan, P. J., & Pontines, V. (2018). Financial stability and financial inclusion: The case of SME lending. The Singapore Economic Review, 63(01), 111-124. DOI: https://doi.org/10.1142/S0217590818410035

Mubarak, A., Suryana, N. K., Jumiati, E., & Intan, S. (2021). Relationship and influence of entrepreneurial orientation, social capital, and warm glow on sustainable agricultural development in the border area of Sebatik Island. IOP Conference Series: Earth and Environmental Science, DOI: https://doi.org/10.1088/1755-1315/807/3/032061

Neaime, S., & Gaysset, I. (2017). Sustainability of macroeconomic policies in selected MENA countries: Post financial and debt crises. Research in International Business and Finance, 40, 129-140. DOI: https://doi.org/10.1016/j.ribaf.2017.01.001

Onodugo, C., Onodugo, I., Ogbo, A., Okwo, H., & Ogbaekirigwe, C. (2021). Moderating role of social capital on the effect of financial behavior on financial inclusion. Problems and Perspectives in Management, 19(3), 502. DOI: https://doi.org/10.21511/ppm.19(3).2021.41

Ozili, P. K. (2018). Impact of digital finance on financial inclusion and stability. Borsa istanbul review, 18(4), 329-340. DOI: https://doi.org/10.1016/j.bir.2017.12.003

Ozili, P. K. (2020). Theories of financial inclusion. In Uncertainty and challenges in contemporary economic behaviour (pp. 89-115). Emerald Publishing Limited. DOI: https://doi.org/10.1108/978-1-80043-095-220201008

Park, C.-Y., & Mercado, R. V. (2021). Financial inclusion: New measurement and cross-country impact assessment 1. In Financial Inclusion in Asia and beyond (pp. 98-128). Routledge. DOI: https://doi.org/10.4324/9781003035916-4

Pitas, N., & Ehmer, C. (2020). Social Capital in the Response to COVID-19. American Journal of Health Promotion, 34(8), 942-944. DOI: https://doi.org/10.1177/0890117120924531

Putnam, R. D. (2000). Bowling alone: The collapse and revival of American community. Simon Schuster. DOI: https://doi.org/10.1145/358916.361990

Ramzan, M., Amin, M., & Abbas, M. (2021). How does corporate social responsibility affect financial performance, financial stability, and financial inclusion in the banking sector? Evidence from Pakistan. Research in International Business and Finance, 55, 101314. DOI: https://doi.org/10.1016/j.ribaf.2020.101314

Rasheed, R., Siddiqui, S. H., Mahmood, I., & Khan, S. N. (2019). Financial inclusion for SMEs: Role of digital micro-financial services. Review of Economics and Development Studies, 5(3), 571-580. DOI: https://doi.org/10.26710/reads.v5i3.686

Ratnawati, K. (2020). The impact of financial inclusion on economic growth, poverty, income inequality, and financial stability in Asia. The Journal of Asian Finance, Economics and Business, 7(10), 73-85. DOI: https://doi.org/10.13106/jafeb.2020.vol7.no10.073

Rees, W. E. (1989). Defining" sustainable Development". University of British Columbia, Centre for Human Settlements Vancouver, BC ….

Rieger, M. O. (2020). How to measure financial literacy? Journal of Risk and Financial Management, 13(12), 324. DOI: https://doi.org/10.3390/jrfm13120324

Sarma, M., & Pais, J. (2011). Financial inclusion and development. Journal of international development, 23(5), 613-628. DOI: https://doi.org/10.1002/jid.1698

Sha’ban, M., Girardone, C., & Sarkisyan, A. (2021). Cross-country variation in financial inclusion: a global perspective. In Financial Literacy and Responsible Finance in the FinTech Era (pp. 23-44). Routledge. DOI: https://doi.org/10.4324/9781003169192-3

Shen, Y., Hueng, C. J., & Hu, W. (2020). Using digital technology to improve financial inclusion in China. Applied Economics Letters, 27(1), 30-34. DOI: https://doi.org/10.1080/13504851.2019.1606401

SINGH, S., GAUTAM, R. S., AGARWAL, B., PUSHP, A., BARGE, P., & RASTOGI, S. (2022). Impacts of financial inclusion on sustainable development in India. The Journal of Asian Finance, Economics and Business, 9(10), 235-242.

Sobiech, I. (2019). Remittances, finance and growth: Does financial development foster the impact of remittances on economic growth? World Development, 113, 44-59. DOI: https://doi.org/10.1016/j.worlddev.2018.08.016

Swamy, V. (2014). Financial inclusion, gender dimension, and economic impact on poor households. World Development, 56, 1-15. DOI: https://doi.org/10.1016/j.worlddev.2013.10.019

Tchamyou, V. S. (2020). Education, lifelong learning, inequality and financial access: Evidence from African countries. Contemporary Social Science, 15(1), 7-25. DOI: https://doi.org/10.1080/21582041.2018.1433314

Tchamyou, V. S., Erreygers, G., & Cassimon, D. (2019). Inequality, ICT and financial access in Africa. Technological Forecasting and Social Change, 139, 169-184. DOI: https://doi.org/10.1016/j.techfore.2018.11.004

UNCTAD. (2015). Access to Financial Services as a Driver for the Post-2015 Development Agenda. In: UNCTAD Geneva, Switzerland.

Vieira, K. M., Júnior, F., & Potrich, A. C. G. (2020). Measuring financial literacy: Proposition of an instrument based on the Item Response Theory. Ciência E Nat, 42, 38. DOI: https://doi.org/10.5902/2179460X39864

Ye, J., & Kulathunga, K. (2019). How does financial literacy promote sustainability in SMEs? A developing country perspective. Sustainability, 11(10), 2990. DOI: https://doi.org/10.3390/su11102990