ABSTRACT
The objective of this study was to identify the effect of financial literacy on financial inclusion in Kogi state. The study was informed by Asset Building and Financial Inclusion theory, Behavioral Economics, Capability theory, and Institutional theory. Descriptive research design was adopted. The target population was the small- scale farmers in Kogi state. The sample size was 384 farmers in Kogi state, who were picked randomly from the various sub-counties within Kogi state. The study collected primary data through a questionnaire. Prior to data collection, a pilot test was conducted to check for validity and reliability of the instrument. Content validity was checked with the help of the supervisor while reliability was tested through Cronbach’s test. The questionnaires were administered to the small-scale farmers by the researcher. The collected data was cleaned and examined for completeness and comprehensibility, and entered into the SPSS (Version 20) for analysis. The data was analyzed using both inferential and descriptive statistics. Descriptive statistics used included standard deviation, means, and frequencies and percentages. Multiple linear regression model was used for inferential statistics to establish the relationship between variables. The analyzed data was presented using charts, frequency tables, and percentages. The study found out that saving practice, debt management practices financial planning practices and investment practices by small-scale farmers influenced the access and use of financial practices to a great extent. The study concludes that that there was a positive and significant relationship between saving practices, debt management, investment practices, financial planning services and financial inclusion. As a result, they used the financial services to save for future needs. On addition, an increase in debt management practices significantly increases use and access of financial services by small-scale farmers. Knowledge of investment options translates to knowledge on financial services which encourage small-scale farmers to use and access financial services for services such as savings and for loans to advance their investments. The study recommend that the various micro finance institutions and government agencies should organize financial education and awareness programs to small scale farmers on saving practices, debt management, financial planning and investment practices. Financial education should also be incorporated in the school curriculum from primary level so that individuals are financially informed early in life.
CHAPTER ONE: INTRODUCTION
1.1 Background to the Study
Financial literacy is much more necessary in today’s world and is a significant element of sound financial decision- making (Atakora, 2013). A number of academic researchers revealed the significance of financial literacy for a number of features of household’s wellbeing as well as economic strength. For instance, Guiso and Jappelli (2008) established that financial literacy has solemn allusions for assets increase as well as portfolio choice. Lusardi and Tufano (2009) established financial literacy have an impact on financial behavior whereby persons with low financial literacy commonly have problems with debt. Individuals who have low financial literacy are considerably less expected to contribute in the stock market (Alessie et al., 2008). The knowhow of income, spending, money management and saving can prepare people with understanding to take charge of their finances (Tschache, 2009).
This study is informed by Asset Building and Financial Inclusion Theory, Behavioral Economics, Capability Theory, and Institutional Theory. Behavioral economics and the institutional theory of saving have informed recent advances in asset building (Sherraden et al., 2015). The capability theory put more stress on the function that access to favorable financial products as well as services plays in households’ financial wellbeing (Sherraden, 2010). Financial inclusion involves both the capability to act (knowledge, skills, confidence, and motivation) as well as the occasion to act (through access to beneficial financial products and institutions) (Johnson & Sherraden, 2007). Institutional theory posits that persons and households are faced with institutional- level aspects that make it unfeasible to use financial products and services (Sherraden & Ansong, 2016).
Small-scale farming in Nigeria is vital for the economy of the country. Taking maize as the case study, the production of this staple food has been declining from 34 to 25 million ba gs in the years (Ali-O lubandwa, Kathuri, Odero-Wanga, & Shivoga, 2011). This situation has been worsened by unsuccessful agricultural reforms that small-scale farmers in the western part of Nigeria that have primarily affected the country’s main breadbasket. According to Kalunda (2016), small-scale farmers in Nigeria do not have enough financial literacy, a section of financial inclusion. The author in his recommendations stated that, there is a need for farmers to be taught on financial education so as to enable them to suitably uses the financial products and services to enhance financial inclusion.
1.1.1 Financial Literacy
Financial literacy refers to the possession of knowledge of how money works and how to manage and invest it, as well as spend it (Atakora, 2013). The topic of financial literacy focuses on the capability of an individual to manage their finances well and make the most appropriate decisions. The significance of the subject matter lies in the fact that making sound financial decisions enables an individual to plan efficiently for their future and that of their families and avoid financial problems.
With the changing financial environment, identifying earnings and ensuring that one does not spend what they do not have is crucial. Relatively, financial education or literacy contributes to stability and growth, affecting socioeconomic levels in the process (Atakora, 2013). Notably, financial literacy is a sign of knowledge of global economics, technology, consumer rights, attention to detail, and organizational skills.
1.1.2 Financial Inclusion
Financial inclusion refers to the use and access of a broad range of affordable and quality financial products and services (Johnson & Sherraden, 2007). It refers to a person being able to make day-to-day financial transactions, safeguard savings, finance small enterprises, plan and pay recurring expenses, mitigate shocks, and improve their welfare.
According to Ford, Baptist, and Archuleta (2011), over 2 billion people (almost half of the world’s total populace) lack an account in a formal financial institution. It is an apparent show of financial non- inclusion. There are several reasons why financial inclusion is significant. One is because it reduces poverty and inequality in the society. Second, it drives economic growth. Third is because it enables and empowers members of the community to manage their money and make sound financial decisions. In addition, it leads to individual benefits like growing business, educating children, and handling uncertainties. Essentially, financial inclusion boosts status and income.
1.1.3 Financial Literacy and Financial Inclusion
Literacy and inclusion in financial services and products are imperative in the international community. Financial exclusion affects billions of people worldwide, making them experience economic problems that affect them and their families both in the future and at present (Ford, Baptist, and Archuleta, 2011). There are varied corporate and regulatory constraints that form barriers, leading to an increase in literacy in finances.
In many countries, a large proportion of the populace is still excluded in financial services. One of such nations is Nigeria. Policymakers must recognize the imperativeness of efforts to develop financial inclusion strategies and educate the majority of the populace regarding financial management. National policies at different stage must provide a framework to improve financial inclusion and literacy.
1.1.4 Financial Literacy and Inclusion in Nigeria
Small-scale farmers constitute of approximately half of the hungry people in the world. Relatively, they constitute approximately 75% of malnourished children in Africa. Small- scale farming or agriculture is the alternative of intensive or factory agriculture, which is farming on large scale. It is the type of agriculture that takes places on small pieces of land, which in Africa averages to about 2.4 hectares (Graham 2006). Small-scale farming usually takes place on the family land, and is also known as subsistence farming because the farmers focus on growing the products for families and selves. A typical small-scale farm contains crops and farm animals that are enough for a family to clothe and feed themselves on an annual basis. In Nigeria, the most important sector of the economy is agriculture. Although between 15% and 17% of land in Nigeria has sufficient fertility for farming, only between 7% and 8% of the same falls under the classification of first-class land (for large-scale farming).
In 2006, reports indicate that over 75% of Nigerians made their living from farming (Graham 2006). This is contrary to the 1980s, whereby over 80% of Nigerians made their living through the same way. Therefore, the number of people that depended on farming for their livelihoods continues to reduce with time. In essence, agriculture is the biggest contributor to the gross domestic product (GDP) of Nigeria. Agriculture, inclusive of fishing, horticulture, and forestry account for at least 24% of the country’s GDP, 18% of employment wages, and 50% of export revenues (Graham 2006 and Koigi, 2012). Nigeria is a major producer of coffee and tea in the world. Besides that, it is also a high exporter of mangoes, onion, cabbages, and other fresh produce in the global economy. Other important farm products of the country are sweet potatoes and maize. Maize is the staple food of the country’s citizenry. Taking into account the recent tension that was escalated by increases in prices of food products, coupled with shortages, one cannot overestimate the significance of farming of in the East African giant. Even though two- thirds of Nigerians depend on small-scale (subsistence) farming, the government and other stakeholders have little to support it. Small-scale farmers in the country need help in several areas of the sector including the structuring of farmlands, the information reading the best animals to keep and the type of crops to grown in specific types of soil, and in financial literacy.
Kenya state is home to the majority of small-scale farmers in the country. In addition to that, it is one of the most important breadbaskets in the country. Nonetheless, the farmers in the county face multiple challenges, which imperatively affect Nigeria’s food security. Among some of the most important challenges that they face is the lack of technical know-how. There is also the absence of awareness of modern agricultural practices, financial problems, and weather issues such as drought and floods. Although the exact data on the number of small-scale farmers that are financially literate do not exist, study findings such as Ali-Olubandwa, Kathuri, Odero- Wanga, & Shivoga (2011), Woomer et al. (2016), and Koigi (2012) point out that majority of small-scale farmers in Nigeria, especially Kenya state, lack the financial literacy. Conversely, they lack financial inclusion, judging from the fact that there are few or no financial institutions available in the county.
The Nigerian Government, together with other non-governmental organizations (NGOs) have done little to ensure that the farmers have financial know-how in order to make sound decisions regarding their finances and improve their production in the long-run. However, one of the institutions that have focused on this subject matter is the Agricultural Finance Cooperation (AFC). According to the company’s website, in the areas in which it operates, it receives up to 90% of loan applications, processes 85% of them, and uses 83% of its revenue for research and development (Agricultural Finance Corporation, 2017). The parastatal also claims that it gets up to 93% of new clients annually (Agricultural Finance Corporation, 2017). Although these claims and this data cannot be substantiated, the steps that the organization has undertaken to improve financial education among small-scale farmers, helping them to make sound financial decisions in the process, and improve the agricultural sector in western Nigeria are laudable. Nevertheless, a lot remains to be done.
1.2 Research Problem
Asset Building and Financial Inclusion theory argues that a person’s stock of assets and their participation in the contemporary financial environment is beneficial for them (Ford, Baptist, and Archuleta, 2011). This theory is useful in gauging how assets and financial inclusion is beneficial to small- scale farmers in western Nigeria. Behavioral Economics theory questions the rationality of human beings in financial decisions (Bakker, 2011). It is crucial in evaluating the behavior of small-scale farmers in the county both before and after they are financially literate and included. Capability Theory focuses on individual-agency relationship (Ford, Baptist, and Archuleta, 2011). It is important in questioning the ability of the farmer to make sound financial decisions when they have financial literacy and inclusion. Finally, there is Institutional Theory, which emphasizes the role of financial entities (Ford, Baptist, and Archuleta, 2011). It is significant in highlighting the role of banks and other financial institutions in ensuring that farmers have financial literacy and inclusion.
The level of financial literacy and inclusion in Nigeria is low. Small-scale farmers continue to make wrong financial decisions, which negatively affect their families. They lack the knowledge, awareness, behavior, attitude, and skills that are necessary to make sound financial decisions and achieve the ultimate financial wellbeing which is fundamental, not only to them, but also to the Nigerian economy (Graham, 2006). They do not have the capability of managing their assets and money, which puts them in a recurring state of poverty.
Dannenberg and Lakes (2014) provide the significance of mobile phones in supporting financial literacy in Nigeria. Their findings show that technology improves financial literacy and inclusion. Ali-Olubandwa, Kathuri, Odero-Wanga, & Shivoga (2011) conducted a study that showed that small-scale farmers in western Nigeria lack the security to obtain credit facilities. The study by Anderson (2015) revealed that financial literacy leads to better inputs, which increase the production potential of small-scale famers. Financial inclusion in Kenya state would go a long way in enabling them to make sound financial decisions and get access to financial services that help them to bot productivity and eliminate poverty. The various studies have focused on the effects of financial literacy, ignoring whether the knowledge obtained is used by farmers. This research cannot answer all the questions on the subject matter. However, it focused on one aspect that needs exploration, being, and the effect of financial literacy on financial inclusion in Kogi state. This begs the question:
What is the effect of financial literacy on inclusion in Kogi state?
1.3 Study Objectives
The main objective of this study was to identify the effect of financial literacy on financial inclusion in Kogi state.
1.4 Significance of the Study
There are three main stakeholders to whom the findings of this research will be relevant. The first one is small-scale farmers. The findings of this research give the farmers the significance of having financial literacy and give them recommendations where they can find the relevant information. They will also benefit by identifying the institutions from where they can get financial information that they want.
The Government of Nigeria is the second primary stakeholder of the research findings. There is reason to believe that the government is not doing enough to provide financial literacy skills to small-scale farmers with the aim of improving food security in the country. This research gives evidence of the need to identify programs to implement to achieve this objective. In addition to that, it will highlight the problems that small-scale farmers in Kogi state face regarding management of their fiancés.
The final primary stakeholder is the Nigerian community, which stands to gain from the findings of this research by providing the importance of financial literacy. It will also gain the information and knowledge provided regarding the relevant institutions from which small-scale farmers can benefit. Other stakeholders are scholars on this subject who will identify areas for further studies. They can also use the findings in their pieces of research.
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