Financial Inclusion and Financial Condition: The Mediating Effect of Financial Self-efficacy and Financial Literacy

Abstract

Background:

The belief of individuals and access to useful, affordable financial resources by small and medium businesses, especially to manage their finances to improve their financial condition, is limited.

Objectives:

This study investigates the impact of financial inclusion on the financial condition of small and medium enterprises in south-west Nigeria through financial self-efficacy and financial literacy.

Methods/Approach:

This study employs the purposive sampling technique to employ a quantitative method on the active population of registered small and medium-scale enterprises (SMEs). Two statistical software were used; statistical package for social sciences and structural equation modelling to test the mediating effect of financial self-efficacy and financial literacy on relationship between financial inclusion and financial capability of SMEs.

Results:

The component effectively measures all its constructs with the confirmatory factor analysis measure. Based on the structural model, financial inclusion directly and indirectly through financial self-efficacy and financial literacy positively influences financial capability.

Conclusion:

This shows that financial inclusion amplifies the financial condition of SMEs in south-west part of Nigeria. It was recommended that managers of the firms should encourage and implement suitable and appropriate financial inclusion strategies to enhance financial conditions. Likewise, management of the SMEs when making decision on the product and service offered should strategically create thoughtful ideals that will increase their ability to manage their financial condition through financial self-efficacy and literacy. However, it was suggested that similar studies be conducted in other sectors of the economy.

Keywords

Financial Inclusion Financial Self-Efficacy Financial Literacy Financial Condition

Introduction

The introduction of the digital economy by the ministry of information and technology has vastly contributed to Nigeria’s economy in small and medium-scale enterprises (SMEs) (Osabuohien, 2008; Yahaya, 2021). In most developing countries, business financing has become a major barrier to adopting new digital economy developments (Aribaba, Ahmodu, et al., 2019; Aribaba, Yusuff, et al., 2019; Hanna, 2020; Terada-Hagiwara et al., 2019). The advancement of different strategies has made financial transactions between buyers and suppliers of goods and services easier. The development of the Nigerian financial sector gives a variation in the financial outcome by using different applications regularly to assess business performance (Yahaya, 2021). Because both the buyer and the seller understand how to use technology well (Yahaya, 2021), the appropriateness given by the financial provider makes it more likely that the buyers will change how they buy from the seller.

In 2012, the Nigerian government launched a national financial inclusion strategy that focuses on consumer protection and its constituents’ ease of doing business through the central bank of Nigeria. The resolution is based on financial literacy and financial self-efficacy for self-sustainability as a strategy of policy instrument to elevate the level of trust between the government and the populace. As a result, conflict resolution and consumer education are critical to achieving goals (Esiebugie et al., 2018).

The financial products and services strategy introduced by the government and financial institutions have positively increased market confidence and reduced inequality between customers and the financial service providers (Michael & Sharon, 2014). The dynamic advancement in information and communication technology through the development of the digital economy has changed individual preferences, and the increasing complexity of financial products and services has influenced their financial condition (Adetunji & David-West, 2019; Johansson et al., 2006). At the end of the 2020 national financial literacy and financial self-efficacy survey, the finding shows that only 68.26% of Nigerians have the actual knowledge, skills and ability regarding financial products and services that can lead to an effective financial condition on ease of doing business (Adetunji & David-West, 2019; Tajaddini & Gholipour, 2021). The percentage has fallen from 46.3% in 2010 to 20% by 2020 (Hussaini & Chibuzo, 2018).

The Nigerian government is increasingly active in launching assistance by introducing a different programme on financial literacy for its citizenry through the financial service authority. The level of financial literacy and financial self-efficacy among Nigerians has become an issue that has led to a decline in the financial capability of an individual in doing business. According to Rasheed et al. (2019), financial inclusion is an important element that can strengthen the financial condition of individuals doing business. Because of these connections, it is clear that introducing financial literacy and financial self-efficacy can help people who do business in Nigeria improve their finances in a good way.

Financial literacy and self-efficacy in improving financial inclusion and conditions are needed at the formative stage of ease of doing business in Nigeria. Individual belief in doing business is based on financial self-efficacy and financial literacy in managing finances and using available financial products and services to achieve major financial objectives (Uwah et al., 2021). Financial self-efficacy and financial literacy are important elements of financial success because they will improve money management and financial conditions (Eniola, 2020; Osabuohien, 2008; Rasheed et al., 2019).

The World Bank in affirmation to Lemi et al. (2021) mentioned that ratio at which the Gross National Saving per Gross Domestic Product of Nigeria in 2020 was 21.45%. This percentage or ratio is below some developing countries, which further emphasizes the development of technology and infrastructure to ease doing business. Developing countries with better GDP include Thailand at 31.48 and Singapore at 54.62, which Nigeria should be rated. However, there is an indication of an increase in saving even though Nigeria is still relatively average compared to other developing countries such as Thailand, South Africa and Singapore (Tajaddini & Gholipour, 2021).

Based on the examples above and the state of the literature, most business owners lack financial self-efficacy and have a low level of financial literacy when it comes to doing business. However, it is interesting that little has been done to examine the mediating effect of financial self-efficacy and financial literacy on financial inclusion and the financial condition of small and medium enterprises (SMEs) in south-west Nigeria, especially the manufacturing sector of the SMEs. The manufacturing sector is important in the most developed economies because it contributes enormously to economic growth and development. It also creates job prospects for young graduates and earns foreign exchange for the country. However, the situation is different in Nigerian SMEs, especially in the manufacturing sector.

According to a survey done by the National Bureau of Statistics and the SME Development Agency of Nigeria (SMEDAN) in 2018, Nigeria has around 41.5 million MSME enterprises. Figure 1 shows a breakdown of the sizes of enterprises in the industry and other key statistics. Uwah et al. (2021) studied the financial exclusion rates in Switzerland, the United States, Venezuela, Nigeria, Pakistan, India and Argentina over four and a half decades (1960–2005), using the same measure of the currency outside the banking system to reduce the money supply. Even though the rate of exclusion needs to go down faster, they came to the conclusion that Nigeria had not done badly compared to other countries.

Figure 1.

Financial Inclusion Process.

The manifestations of the financial condition of manufacturing firms (SMEs) in Nigeria can be seen decreasing in number, and some businesses have been shutting down in the country over the last couple of years. Existing literature has exposed the significance of financial literacy and financial self-efficacy in enhancing the financial condition of business owners (Rasheed et al., 2019). Nguyen and Mogaji (2021) mentioned that financial inclusion is a key factor that helps to classify the chances of changing the business environment through financial self-efficacy and financial literacy by making financial conditions better.

Meanwhile, lack of sufficient financial condition among Nigerian SMEs, particularly manufacturing firms, may be the result of the firms’ lack of knowledge about financial inclusion. Therefore, this study tends to examine the mediating effect of financial self-efficacy and financial literacy on financial inclusion and the financial condition in south-west Nigeria, especially the manufacturing sectors of the SMEs.

Literature Review and Hypotheses Development

Financial Literacy

Individuals perceive financial literacy differently based on existing literature, with the ability to be aware of economic conditions and instances that influence their individual household decisions (Abreu & Mendes, 2010; Adetunji & David-West, 2019; Saifurrahman & Kassim, 2021). This concept emphasizes fund management, budgeting, saving, investing and insurance in doing business (Goyal et al., 2021; Hassan, 2021). In some contexts, financial literacy overlaps with financial education and financial capability, which brings about the uncertainty in comparing them in terms of ease of business.

The Organization for Economic Co-operation and Development (OECD) defines financial literacy as the knowledge and ability to understand the risk, capacity, encouragement and confidence that go into a person’s financial success and their ability to contribute to their business’ economic life (Hussain et al., 2021).

The development of financial literacy started in the United States of America with an act from Smith-Lever. The act was a corporate extension of the United States Act of 1914, which allowed individuals to acquire and apply financial skills to ease doing business (Yahaya, 2021). Since this act was to assist an individual in financing their business, the idea of financial literacy emanates from the financial market liberalization in 1998. As a result of these developments, the OECD launched an international campaign to increase financial literacy values, which has gained traction over the years as an important component of improving financial condition and financial market inclusion (Lepoutre & Oguntoye, 2018; Nzeribe, 2020).

Financial Inclusion

Financial inclusion is the equal access of individuals to the use of available financial services that have been offered by different financial institutions (Sanderson et al., 2018). Financial inclusion is to put the financially debarred actions under welfare development protection by providing proper financial services (Dzulkepli & Barom, 2021; Hashim et al., 2021). Financial inclusion is the provision of financial goods and services to a resident who does not have access (Goyal et al., 2021). Furthermore, financial inclusion helps individuals who do not have access to financial services such as credit loans, bank accounts and micro-financial institutions (Adagye et al., 2021). Its system includes access to credit, product savings and different ways to pay, all of which help people in different ways (David-West et al., 2021; Malik-Abdulmajeed, 2021; see Figure 1).

The theory of financial inclusion starts to grow by providing a better economic outcome within the household to impact economic development (Aduda & Kalunda, 2012; García & José, 2016). The study by Dzulkepli and Barom (2021) shows that effective financial inclusion is structured for the critical financial products, which include individual investment, credit, payment and risk management for an individual with various financial needs (Aduda & Kalunda, 2012; García & José, 2016; Goyal et al., 2021). Yoshino and Morgan (2016) say that a well-run financial inclusion programme helps vulnerable people get fair and timely access to financial services.

Financial Self-efficacy

The determinant of individual financial behaviour is related to their level of financial efficacy based on social cognitive theory (Mindra et al., 2017). The level of trust towards financial self-efficacy is linked with economic context measures that generally predict an individual’s ability to use and access financial services (Soepding et al., 2021). Existing literature on the concept of financial self-efficacy concludes that there is a missing point in connecting individual knowledge and success in attaining financial goals (García & José, 2016; Goyal et al., 2021; Malik-Abdulmajeed, 2021; Michael & Sharon, 2014; Rasheed et al., 2019). Usama and Yusoff’s (2019) study examines teenagers’ behaviour towards self-efficacy and finds that funds are managed differently. Extant literature has established that context plays a vital role for individuals in terms of their ability to choose a specific financial product or service.

Financial Condition

The inconsistency of results on the relationship between variables relating to financial products and services based on financial structure and programmes developed by the government has become a major issue for the citizenry in terms of doing business (Abreu & Mendes, 2010; David-West et al., 2021; Kama & Adigun, 2013; Kodongo, 2018). Other factors, such as financial inclusion, determine financial condition in other financial-related studies. Existing literature supports the relationship between financial inclusion as a requirement for individual financial conditions (Hussain et al., 2021; Kama & Adigun, 2013). The implication of mediating the effect of financial self-efficacy and financial literacy on one’s financial condition and financial inclusion is more evident in a society where the poverty rate is high (Osabuohien, 2008; Refera et al., 2016; Tajaddini & Gholipour, 2021). In the case of this study, the researcher is looking at the relationship between financial inclusion and the financial condition of the individual as being mediated by financial literacy and financial self-efficacy.

Relationship Between Financial Inclusion and Financial Condition

Individuals and enterprises with financial inclusion have access to useful and cheap financial products and services that fulfil their requirements, such as transactions, payments, savings, credit and insurance, supplied responsibly and sustainably (Pomeroy et al., 2020). Optimizing the use of financial technology to enable access and improve outreach is also required to increase financial literacy and inclusion for MSMEs’ development. This study aims to create a paradigm for improving MSMEs’ financial literacy and inclusion to improve their financial situation (Vasile et al., 2021). According to studies conducted by Onyango (2018) on the effect of financial literacy on access to financial services in Kenya in 2009, access to financial services is influenced not only by financial literacy but also by income, distance from banks, age, marital status, gender, household size and other factors. Aku (2018) examined 44 African nations using data from 1988 to 2007 on cell phone relationships, financial inclusion and economic growth. The disparity in results regarding the relationship between factors relating to financial products and services based on financial structure and government programmes has emerged as a major concern for citizens in business (Atkinson & Messy, 2013). Other financial-related studies have indicated that other factors, such as financial inclusion, determine the financial condition (Kartawinata et al., 2021; Taft et al., 2013; Twumasi et al., 2022). Financial inclusion as a prerequisite for individual financial conditions is supported by existing studies (Vasile et al., 2021). In a culture with a high rate of poverty, it is becoming clearer how important it is to moderate the effects of financial self-efficacy and financial literacy on financial status and financial inclusion (Braunstein & Welch, 2002).

To extend our knowledge, this study seeks to test the following hypothesis:

H₁: There is a direct relationship between financial inclusion and the financial condition of SMEs in south-west Nigeria

Relationship Between Financial Inclusion, Financial Literacy and Financial Condition

The twin pillars of financial inclusion and financial literacy are intertwined. Financial literacy stimulates demand by making people aware of what they can want. In contrast, financial inclusion acts from the supply side by supplying the financial products and services people desire (Atkinson & Messy, 2013). Financial literacy has become a major concern in Nigeria in recent years. The employees of a substantial number of people lack fundamental financial understanding related to day-to-day money management and saving for a long time. In a study conducted in the United States, Onyango (2018) found that financial knowledge might be statistically linked to financial activities such as cash-flow management, credit management, saving and investing. Non-participation in risky asset markets; under-diversification of risky portfolios; other investing blunders; and failure to take advantage of mortgage refinancing opportunities are all examples of risky asset market inaction. Aduda and Kalunda (2012) opined that one common percentage of adults with bank accounts was used to measure financial inclusion on the foundation of using accessible data. It was discovered that 59% of the adult population in Nigeria has a bank account. In other words, 41% of the population does not have a bank account. As the number of loans increases, so does the extent of exclusion from credit markets; only 14% of adults had bank accounts.

Financial literacy is quite low around the world, regardless of income level. According to the Netherlands and Italy, the state of the financial markets and the type of pension offered also indicate that women and minorities are underrepresented in the workforce. Increased financial literacy aids people’s personal and professional lives based on financial knowledge, reducing social and psychological pressures and improving their financial condition in life (Hastings et al., 2013). Financial literacy reduces stress, financial conflicts, child abuse and family strife with better financial understanding and financial condition, less aggressive and anti-social conduct, and more self- confidence (Taft et al., 2013). Braunstein and Welch (2002) say that people who know about money are more productive and efficient, better understand how the organization helps them, and are happier with their jobs.

H₂: There is a significant direct relationship between financial inclusion and the financial literacy of SMEs in south-west Nigeria

H₃: There is a significant direct relationship between financial literacy and the financial condition of SMEs in south-west Nigeria

H₄: Financial literacy mediated the relationship between financial inclusion and financial condition among SMEs in south-west Nigeria.

Relationship Between Financial Inclusion, Financial Self-Efficacy and Financial Condition

The perception of financial inclusion is inversely proportional to financial self-efficacy. An individual’s sense of self-assurance is one’s own ability to perform a given task and to regard dangers and problems as opportunities to make progress (‘self-efficacy’; Kartawinata et al., 2021). Self-confidence is the belief that you can do something well. It makes you more likely to try and more likely to succeed.

Self-efficacy is a psychological attribute that significantly impacts human behaviour (Joseph et al., 2017). A person with high self-efficacy has a positive outlook on life, sets tough goals, is committed to achieving the intended outcome, and is quick to rebound from setbacks. Individuals’ confidence in their abilities to successfully handle their finances is referred to as financial self-efficacy. Improvement in self-efficacy may lead to beneficial behavioural change (Mindra & Moya, 2017). It has also been discovered that when one’s income rises, so does one’s financial autonomy and self-efficacy. On the other hand, financial inclusion programmes were more likely to support experiential learning due to familiarity with financial goods. These hands-on experiences are likely to instil confidence in one’s capacity to handle financial concerns successfully.

H₅: There is a significant direct relationship between financial inclusion and financial self-efficacy of SMEs in south-west Nigeria

H₆: There is a significant positive relationship between financial self-efficacy on the financial condition of SMEs in south-west Nigeria

H₇: Financial self-efficacy mediated the relationship between financial inclusion and financial condition among SMEs in south-west Nigeria

Following the seven hypotheses formulated for the present study, Figure 2 depicts the heuristic model, showing all the relationships existing between the variables of the study.

Figure 2.

Conceptual Framework.

Methodology

Research Design, Population and Sample Size

With the aid of an adopted survey designed and purposively administered to gather related information from manufacturing SMEs within south-west Nigeria, quantitative cross-sectional survey research was used. The focus of this research is on manufacturing businesses that are listed in the SMEs business directory (SMEDAN). Out of a total population of 41.5 million registered businesses in Nigeria, three states’ Lagos, Osun and Oyo in the south west region were purposely selected being the largest states housing 17,533 SMEs (Anifowose et al., 2022; Kale, 2019). However, 400 questionnaires were administered to owners, managers, supervisors and foremen of selected SMEs to depict a good representation, since 376 SMEs were the appropriate sample size, considering a post hoc analysis performed using the G*Power 3.1.9.7 tool, at a 5% significance and effect size threshold of 0.15.

Instrumentation and Measurement

To obtain data, a closed-ended questionnaire was used, with questions drawn from prior relevant studies, hence, all the identified items for this study are adapted and modified to ensure they accurately fit the context of the present study. The administered questionnaire items for this study was adopted from existing literature on the constructs of financial inclusion, financial self-efficacy, financial literacy and financial condition (Chong et al., 2021; Michael & Sharon, 2014; Mindra et al., 2017; Nmadu & Mika’ilu, 2018). Eighteen items were collected, from which financial self-efficacy and financial literacy comprised four items each, financial inclusion five items, and financial condition with five items. A five-point Likert scale was used to admit all the items (1 = strongly disagree with 5 = strongly agree).

Estimation Techniques

The analytical procedure deployed in this study comprises both descriptive and inferential statistics. The SPSS 26 software was utilized to describe the sample population frame, in terms of frequencies and percentages, as well as strengthen the association between the study variables. At the same time, the proposed structural model on the nexus between financial self-efficacy and financial literacy in mediating financial inclusion and financial capability was subjected to a psychometric test with confirmatory factor analysis (CFA) and confirmation by the structural equation modelling.

Results and Discussion

Data Analysis and Results

Response Rate

Table 1 shows the summary of the respondent’s questionnaire, with 400 surveys given out over four months. Meanwhile, 235 were returned and 210 were usable after data screening and cleaning, implying a 53% response rate.

Table 1.

Response Rate.

Firms	No. Distributed	No. Returned	No. Deleted	No. Usable
Food and beverages	50	31	4	27
	50	25	2	23
Plastic and rubber product	50	34	3	31
Metal product	50	40	6	34
Pulp and paper production	50	31	3	28
Textile and food wears	50	30	5	25
Wood carving product	50	24	2	22
	50	20	–	20
Total	400	235	25	210

Demographic Profile of Respondents

The respondent profile included 120 men (57.1%) and 42.9% women; on average, 49.5% were between the ages of 25 and 40 years, with the remaining 50.48% being 40 years and above. In lieu of educational qualifications, 66.7% indicated that they were graduates and 23.8% held a postgraduate degree. The remaining 9.5% held a secondary school diploma (Table 2).

Table 2.

Demographic Profile of the Respondents.

Variables	Categories	Frequency (n = 210)	Percentage
Gender	Male	120	57.1
	Female	90	42.9
Age (years)	Below 30	10	4.8
	30–35	71	33.8
	36–40 Above 40	23 106	10.9 50.5
Educational level	Secondary school certificates	20	9.5
	Bachelors	140	66.7
	Postgraduates	50	23.8

Confirmatory Factor Analysis

To test the hypothesis, the dimension model was used to test the goodness-of-fit indices and the accepted significant loading of all the items on the four constructs (Figure 3).

Figure 3.

Confirmatory Factor Analysis Model Testing the Structural Loading.

The CFA was carried out on the 18 items to test the structural loading. Based on the item loading, all the indicator loadings were 0.6 and above, denoting by Hair et al. (2019) that any loading higher than 0.50 is considered significant. The measurement model shows that the good fit index meets the minimum requirement of the goodness of fit indices detailed in Table 3. Accordingly, Kline (2005) states that the Goodness of Fit Index and Comparative Fit Index are greater than equal to 0.95, while the Root Mean Square of Appropriation should be 0.05 to clarify the model’s fit. The value below three is considered acceptable on the Chi-square value χ²/df. The TLI and AGFI must be 0.90 and above. The 18-item scale used for this analysis indicates that the model is acceptable at its minimum threshold.

Table 3.

Summary of the Goodness-of-Fits Index of Financial Condition Model.

Chi-square	Insignificant	213.029
p value	0.001 ≤ p ≤ 0.05	0.000
CMIN/DF	2 ≤ χ²/df ≤ 3	1.651
CFI	.90 ≤ CFI ≤ .90	0.967
NFI	.90 ≥ NFL	0.920
GFI	.80 ≥ GFI	0.896
AGFA	.80 ≥ AGFI	0.862
TLI	.90 ≥ TLI	0.960
RMS	.05 ≤ RMSEA ≤ .08	0.056

The study accesses the measurement model’s convergent and discriminant validity in Table 4. For the composite reliability, it is suggested that the minimum threshold value be 0.7 and the average variance extracted (AVE) value be 0.5 or higher, as suggested by Abd Ghani et al. (2017). The AVE was calculated using standardized loading of each identified item, which shows that the value ranged from 0.627 to 0.889. The AVE result shows that financial condition, financial literacy, financial self-efficacy and financial inclusion are 0.627, 0.632, 0.685 and 0.889, respectively. On the composite reliability test, the value for the financial condition is 0.893, financial literacy is 0.873, financial self-efficacy is 0.896, and financial inclusion is 0.618. In summary, all the items are good measures since all AVE are above the threshold of 0.50 and CR is 0.70.

Table 4.

Convergent Validity Test.

Variables	Construct Statements	Loadings	AVE	CR
Financial condition	FC5	0.72
	FC4	0.76
	FC3	0.84	0.627	0.893
	FC2	0.85
	FC1	0.78
Financial literacy	FL4	0.77
	FL3	0.80
	FL2	0.81	0.632	0.873
	FL1	0.80
Financial self-efficacy	FSE4	0.86
	FSE3	0.95
	FSE2	0.74	0.685	0.896
	FSE1	0.61
Financial inclusion	FI5	0.74
	FI4	0.76
	FI3	0.85	0.889	0.618
	FI2	0.86
	FI1	0.72

AVE: average variance extracted, CR: composite reliability.

Structural Model

The seven hypotheses were tested to examine the causal pathways in the model used for this research. The findings of the hypothesis testing are explained in Table 5 on the hypothesized model. All the direct hypotheses were statistically and positively significant at (p < 0.05). The R² value was calculated to be 0.69, indicating that financial self-efficacy explained 69% of the variance in financial conditions. With an R² value of 0.78 towards financial condition, financial literacy explained 78% of the variance in financial condition.

Table 5.

Maximum Likelihood Estimates.

H	Relationship	SRW(β)	SE	CR	p value	Decision
H1a	CF ← FL	0.312	0.94	3.287	0.000	Supported
H2a	FL ← FI	0.241	0.91	3.023	0.000	Supported
H2b	FSE ← FI	0.301	0.95	3.141	0.000	Supported
H2c	FC ← FI	0.201	0.93	3.451	0.000	Supported
H3a	FC ← FSA	0.274	0.89	2.121	0.000	Supported

The finding of the hypothesis testing implied that Hypothesis three (H₃), which states there is a significant direct relationship between financial literacy and financial condition, was supported with β = 0.312; SE = 0.94; CR = 3.287 and p value of ≤ 0.05. While (H₄) which says financial literacy mediates financial inclusion and financial condition with a β = 0.212; SE = 0.79; CR = 2.141.

Similarly, hypothesis two (H₂) says there is a significant direct relationship between financial inclusion and financial literacy. This hypothesis is supported with β value = 0.241; SE = 0.91; CR = 3.023 and p value of ≤0.05. H₅: there is significant direct relationship between financial inclusion and financial self-efficacy and H₁: there is direct relationship between financial inclusion and financial condition, which shows that β = 0.301; SE = 0.95; CR = 3.141 and β = 0.201; SE = 0.93; CR = 3.451 and p value of ≤ 0.05; hence, all the hypotheses in H₁, H₂ and H₅ were positively supported. The result of hypothesis six (H₆), showed that a significant relationship is associated between financial self-efficacy on financial condition with β value of 0.274; SE = 0.89; CR = 2.121 and a p value of ≤ 0.05. Hypothesis seven (H₇), which expressed financial self- efficacy indirectly mediated the relationship between financial inclusion and financial condition, showed the β value of 0.301; SE = 0.66; CR = 3.016 and a p value of ≤ 0.05, which was also supported (Figure 4).

Figure 4.

A Structural Model.

Discussion of Findings

This study uses a model to examine the financial condition of SMEs in south-west Nigeria. Financial self-efficacy and financial literacy were used to mediate financial inclusion to ensure the effective validity of the model. The finding exhibited that H₃, which states there is a significant direct relationship between FL and FC, was supported β = 0.312; SE = 0.94; CR = 3.287 and p value at 0.000. The finding affirms the previous study (Raut, 2020; Umar et al., 2021).

Similarly, H₂ says a direct, significant, and positive relationship between financial inclusion and financial literacy. This hypothesis is supported with β value = 0.241; SE = 0.91; CR = 3.023 and a p value of ≤ 0.05. Hence, the study results align with those of Allgood and Walstad (2013) and Christelis et al. (2010), who found a significant and positive association between cognitive abilities like financial literacy and financial behaviour and higher levels of financial inclusion. H₅: there is a significant direct relationship between financial inclusion and financial self-efficacy. Also, hypothesis one denoted that there is a direct relationship between financial inclusion and financial condition, showing β value of 0.201; SE = 0.93; CR = 3.451 and p value of ≤ 0.05, respectively.

The result of H₆ showed that a significant relationship is associated with financial self-efficacy on financial condition with a β value of 0.274; SE = 0.89; CR = 2.121 and a p value of 0.05. Hence, the result conforms with the study conducted by Noor et al. (2020) and Kemal (2019); whereby a recommendation was made that financial literacy is pertinent to having equitable financial inclusion in the economy, since financial literacy in individuals stimulates a better emotional state of authorization and informed judgment regarding financial choices (Mindra & Moya, 2017).

This study has two mediating hypotheses. First, (H₄) financial literacy mediates financial inclusion and condition indirectly. Second, with 95% confidence intervals, H₇ expressed financial self-efficacy indirectly mediates the relationship between financial inclusion and financial condition. 10,000 bootstrapped of 10,000 were stimulated, and the result is shown in Table 6. Financial literacy indirectly mediates financial inclusion, and financial condition was found to be statistically significant and fully mediated, meaning that the direct relationship between financial literacy and financial condition was significant. The relationship between financial inclusion and financial conditions was mediated by financial self-efficacy in an indirect way, and it was found to have a large effect. This means that there was also a full mediation.

Table 6.

Mediation Analysis.

H1b	CF ← FL ← FI	0.212	0.79	2.141	0.000	Full mediation
H3b	CF ← FSE ← F I	0.301	0.66	3.016	0.000	Full mediation

Conclusion

Financial inclusion remains germane to a nation’s economy, as it serves as an intervention strategy, especially for sectors like SMEs in both developed and developing economies. This study focused upon SMEs being the backbone, housing the highest populace in the sectoral part of (a) developing and developed nations, aimed at increasing financial inclusion while increasing usage of financial products and services such as savings, credit, remittances and prospects to individuals’ financial capability such as literacy and self-efficacy. Owners of SMEs in Nigeria have developed a great instinct in finance to acquire and utilize optimal financial services, to exploit the increase in financial conditions. The present study has investigated the effect of financial inclusion on the financial condition of SME ownership and the mediating effect of financial literacy and self-efficacy on this nexus in Nigeria. Estimated results show that financial literacy and financial self-efficacy fully mediate the relationship between SMEs’ financial inclusion and financial conditions.

This study contributed to the existing body of knowledge (Nickels et al., 2016) via the model evidenced by the nexus between the direct and intervening variables involved and the policy guiding individual financial conditions. Promoting financial inclusion is a shared responsibility of the government and the private sector, which requires a wider array of efficient, safe and reliable financial conditions. Financial consumers actively make financial choices and decisions due to adequate knowledge of financial products and services, which invariably improve the quality of life and business financial strategy. SME owners need to develop an interest in financial inclusion. Once the SME is pleased with the product and service of financial inclusion, he or she will establish a relationship that will improve their financial condition.

Limitations and Suggestions for Future Studies

Despite the contributions from this study, some limitations also exist, among which are that this study used a purposive sampling technique to evaluate the data, which may not be an effective financial condition for the sampled population. Hence, a non-probability sampling technique can be employed in future research to determine whether other variables could enhance financial literacy and self-efficacy (Saifurrahman & Kassim, 2021). Further research is required to test the model developed in this study. Similarly, due to time constraints, this study focuses on SMEs from accessible locations rather than going in-depth to remote areas. The geographical coverage is small as the respondents used in the study are business owners willing to disclose their business position; for generalization, future studies could broaden the scope to produce a more representative result than only one or a few geographical areas. Denzin and Lincoln (2011) say that instead of only using a research instrument based on the positivism paradigm, a different research design that effectively achieves rigor can be used.

In addition, on the issue of national context, this research is set in a single country, Nigeria. Therefore, the outcomes of this study can be country-specific, considering national characteristics. Hence, there is a need to conduct future research in the developed nations of the world or other developing countries as the findings may be limited to the Nigerian context (Zahra & Pearce, 1989).

This study implied that financial self-efficacy and financial literacy are mediating variables in the relationship between financial inclusion and the financial condition of SMEs in south-west Nigeria. This is because the level at which SME owners spend time acquiring information on financial products and services does not meet expectations. Hence, to further explain the financial condition of SMEs, more attitudinal factors can be explored, which were not included in this study.

Footnotes

Declaration of Conflicting Interests

The authors declared no potential conflicts of interest concerning this article’s research, authorship, or publication.

Funding

The authors received no financial support for the research, authorship, and publication of this article.

References

Abd Ghani

, Rahi

, Yasin

N. M.

, & Alnaser

(2017). Adoption of internet banking: Extending the role of technology acceptance model (TAM) with e-customer service and customer satisfaction. World Applied Sciences Journal, 35(9), 1918–1929.

Abreu

, & Mendes

(2010). Financial literacy and portfolio diversification. Quantitative Finance, 10(5), 515–528.

Adagye

D. I.

, Bashir

A. S.

, & Usman

A. M.

(2021). Financial inclusion and inclusive economic growth in Nigeria. FUDMA Journal of Management Sciences, 1(1), 414–427.

Adetunji

O. M.

, & David-West

(2019). The relative impact of income and financial literacy on financial inclusion in Nigeria. Journal of International Development, 31(4), 312–335.

Aduda

, & Kalunda

(2012). Financial inclusion and financial sector stability with reference to Kenya: A review of literature. Journal of Applied Finance and Banking, 2(6), 95.

Aku

E. M.

(2018). Impact of financial inclusion on small scale cassava farmers in Nasarawa State, Nigeria. Yobe Journal of Economics (YOJE), 5, 118–135.

Anifowose

N. O.

, Ghasemi

, & Olaleye

B. R.

(2022). Total quality management and small and medium-sized enterprises’(SMEs) performance: Mediating role of innovation speed. Sustainability, 14(14), 8719.

Allgood

, & Walstad

(2013). Financial literacy and credit card behaviors: A cross-sectional analysis by age. Numeracy, 6(2), 1–26.

Aribaba

F. O.

, Ahmodu

O. A.

, Oladele

, Yusuff

S. A.

, & Olaleye

B. R.

(2019). The Role of deposit money banks’ loan facilities in financing small and medium-scale businesses in Nigerian. Academic Journal of Interdisciplinary Studies, 8(2), 277–284.

10.

Aribaba

F. O.

, Yusuff

S. A.

, Ahmodu

O. A.

, and Olaleye

B. R.

(2019). International financial reporting standards and small and medium enterprises growth in Ondo State, Nigeria. Hallmark University Journal of Management and Social Sciences, 1(1), 94–98.

11.

Atkinson

, & Messy

F. A.

(2013). Promoting financial inclusion through financial education: OECD/INFE evidence, policies and practice. OECD Working Papers on Finance, Insurance and Private Pensions No. 34

12.

Braunstein

, & Welch

(2002). Financial literacy: An overview of practice, research, and policy. Fed. Res. Bull., 88, 445.

13.

Chong

K. F.

, Sabri

M. F.

, Magli

A. S.

, Abd Rahim

, Mokhtar

, & Othman

M. A.

(2021). The effects of financial literacy, self-efficacy and self-coping on financial behavior of emerging adults. Journal of Asian Finance, Economics and Business, 8(3), 905–915.

14.

Christelis

, Jappelli

, & Padula

(2010). Cognitive abilities and portfolio choice. European Economic Review, 54(1), 18–38.

15.

David-West

, Oni

, & Ashiru

(2021). Diffusion of innovations: Mobile money utility and financial inclusion in Nigeria. Insights from agents and unbanked poor end users. Information Systems Frontiers, 24(3), 1–21.

16.

Denzin

N. K.

, & Lincoln

Y. S.

(2011). The Sage handbook of qualitative research. Sage.

17.

Dzulkepli

, & Barom

M. N.

(2021). Financial inclusion and the goal of distributive justice in Islamic economics. Journal of Muamalat and Islamic Finance Research, 18(1), 66–77.

18.

Eniola

A. A.

(2020). Entrepreneurial self-efficacy and orientation for SME development. Small Enterprise Research, 27(2), 125–145.

19.

Esiebugie

, Richard

, & Emmanuel

(2018). Financial literacy and performance of small and medium scale enterprises in Benue State, Nigeria. International Journal of Economics, Business and Management Research, 2(4), 65–79.

20.

García

M. J. R.

, & José

(2016). Can financial inclusion and financial stability go hand in hand. Economic Issues, 21(2), 81–103.

21.

Gbadebo

S. M.

(2016). The influences of e-satisfaction, e-trust and hedonic motivation on the relationship between e-banking adoption and its determinants in Nigeria (pp 1–317). A PhD Thesis submitted to School of Business Management, Universiti Utara Malaysia.

22.

Goyal

, Kumar

, Rao

, Colombage

, & Sharma

(2021). Financial distress and COVID-19: Evidence from working individuals in India. Qualitative Research in Financial Markets, 13(4), 503–528.

23.

Hair

J. F.

, Risher

J. J.

, Sarstedt

, & Ringle

C. M.

(2019). When to use and how to report the results of PLS-SEM. European Business Review, 31(1), 2–24.

24.

Hanna

N. K.

(2020). Assessing the digital economy: Aims, frameworks, pilots, results, and lessons. Journal of Innovation and Entrepreneurship, 9(1), 1–16.

25.

Hashim

Y. A.

, Mamman

, Suleiman

A. S.

, & Asmau

Y. D.

(2021). Financial Inclusion in Nigeria. FUDMA Journal of Management Sciences, 2(2), 217–224.

26.

Hassan

S. I.

(2021). Assessment of foreign debt and reduction of inequality as sustainable development goal in Nigeria’s Fourth Republic (2015–2020). Kwara State University.

27.

Hastings

J. S.

, Madrian

B. C.

, & Skimmyhorn

W. L.

(2013). Financial literacy, financial education, and economic outcomes. Annual Review of Economics, Annual Reviews, 5(1), 347–373.

28.

Hussain

, Oad

, Ahmad

, Irfan

, & Saqib

(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.

29.

Hussaini

, & Chibuzo

I. C.

(2018). The effects of financial inclusion on poverty reduction: The moderating effects of microfinance. International Journal of Multidisciplinary Research and Development, 5(12), 188–198.

30.

Joel

O. C.

(2021). Impact of fiscal policy on the growth of Nigerian economy. Journal of Accounting and Financial Management, 7(2), 62–76.

31.

Johansson

, Karlsson

, & Stough

(2006). The emerging digital economy: Entrepreneurship, clusters, and policy: Springer Science & Business Media.

32.

Joseph

, Dhanuraj

, & Joseph

K. A.

(2017). Influence of financial inclusion and financial self efficacy on the credit behaviour of BPL households. International Journal of Research in Economics and Social, Sciences (IJRESS), 7(1), 52–66.

33.

Kale

(2019). Micro, small, and medium, enterprises (MSME) national survey 2017 report. Presentation of Statistician-General of the Federation/CEO National Bureau of Statistics, Nigeria.

34.

Kama

, & Adigun

(2013). Financial inclusion in Nigeria: The journey so far. SSRN 2365209.

35.

Kartawinata

B. R.

, Fakhri

, Pradana

, Hanifan

N. F.

, & Akbar

(2021). The role of financial self-efficacy: Mediating effects of financial literacy & financial inclusion of students in West Java, Indonesia. Journal of Management Information and Decision Sciences, 24(7), 1–9.

36.

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.

37.

Kline

R. B.

(2005). Principles and practice of structural equation modeling (2nd ed.). Guilford Press.

38.

Kodongo

(2018). Financial regulations, financial literacy, and financial inclusion: Insights from Kenya. Emerging Markets Finance and Trade, 54(12), 2851–2873.

39.

Lemi

, Liu

, & Wright

I. A.

(2021). Location choice determinants of Chinese and US firms in Africa: Does spatial interdependence play a role? The World Economy, 44(10), 2966–2997.

40.

Lepoutre

, & Oguntoye

(2018). The (non-)emergence of mobile money systems in sub-Saharan Africa: A comparative multilevel perspective of Kenya and Nigeria. Technological Forecasting and Social Change, 131, 262–275.

41.

Malik-Abdulmajeed

K. M.

(2021). Effect of agency banking model on financial inclusion of rural areas in the north-central region, Nigeria. Kwara State University.

42.

Michael

O. B.

, & Sharon

O. O.

(2014). Financial system, financial inclusion and economic development in Nigeria. International Journal of Management Sciences, 2(3), 139–148.

43.

Mindra

, Moya

, Zuze

L. T.

, & Kodongo

(2017). Financial self-efficacy: A determinant of financial inclusion. International Journal of Bank Marketing, 35(3), 338–353.

44.

Nguyen

N. P.

, & Mogaji

(2021). Financial inclusion for women in the informal economy: An SDG agenda post pandemic. In, Gendered perspectives on Covid-19 recovery in Africa: Towards sustainable development (PP. 213–236). Palgrave.

45.

Nickels

, McHugh

, & McHugh

(2016). Understanding business (11th ed.). McGraw-Hill Education.

46.

Nmadu

Y. B.

, & Mika’ilu

(2018). Financial inclusion and deepening in Nigeria: The contribution of Jaiz Bank. Share: Jurnal Ekonomi dan Keuangan Islam, 7(2), 95–115.

47.

Noor

, Batool

, & Arshad

H. M.

(2020). Financial literacy, financial self-efficacy and financial account ownership behavior in in Pakistan. Cogent Economics & Finance, 8(1), 1806479. 10.1080/23322039.2020.1806479

48.

Nzeribe

(2020). Essays in microfinance: Their capital structure and financial inclusion. Bournemouth University Business School.

49.

Onyango

E. C.

(2018). Effect of financial literacy of customers on loan performance of commercial banks in Kenya (pp. 1–64, Masters dissertation). University of Nairobi.

50.

Osabuohien

E. S.

(2008). ICT and Nigerian banks reforms: Analysis of anticipated impacts in selected banks. Global Journal of Business Research, 2(2), 67–76.

51.

Pomeroy

, Arango

, Lomboy

C. G.

, & Box

(2020). Financial inclusion to build economic resilience in small-scale fisheries. Marine policy, 118, 103982.

52.

Rasheed

, Siddiqui

S. H.

, Mahmood

, & Khan

S. N.

(2019). Financial inclusion for SMEs: Role of digital micro-financial services. Review of Economics and Development Studies, 5(3), 571–580.

53.

Raut

R. K.

(2020). Past behaviour, financial literacy and investment decision-making process of individual investors. International Journal of Emerging Markets, 15(6), 1243–1263.

54.

Refera

M. K.

, Dhaliwal

N. K.

, & Kaur

(2016). Financial literacy for developing countries in Africa: A review of concept, significance and research opportunities. Journal of African Studies and Development, 8(1), 1–12.

55.

Saifurrahman

, & Kassim

(2021). Islamic financial literacy for Indonesian MSMEs during COVID-19 pandemic: Issues and importance. Journal of Islamic Finance, 10(1), 45–60.

56.

Sanderson

, Mutandwa

, & Le Roux

(2018). A review of determinants of financial inclusion. International Journal of Economics and Financial Issues, 8(3), 1.

57.

Soepding

B. A.

, Munene

J. C.

, & Abaho

(2021). Sustaining retirees’ financial well-being: The Nigerian experience. International Journal of Ethics and Systems, 37(2), 318–340.

58.

Soetan

T. O.

, Mogaji

, & Nguyen

N. P.

(2021). Financial services experience and consumption in Nigeria. Journal of Services Marketing, 35(7), 947–961.

59.

Taft

M. K.

, Hosein

Z. Z.

, Mehrizi

S. M. T.

, & Roshan

(2013). The relation between financial literacy, financial wellbeing and financial concerns. International Journal of Business and Management, 8(11), 63–75.

60.

Tajaddini

, & Gholipour

H. F.

(2021). Economic uncertainty and business formation: A cross-country analysis. Journal of Business Venturing Insights, 16, e00274.

61.

Terada-Hagiwara

, Gonzales

, & Wang

(2019). Taxation challenges in a digital economy—The case of the People’s Republic of China. Asian development Bank (ADB) Series No. 108: 1–8.

62.

Twumasi

M. A.

, Jiang

, Ding

, Wang

, & Abgenyo

(2022). The mediating role of access to financial services in the effect of financial literacy on household income: The case of rural Ghana. Sage Open, 12(1). 10.1177/21582440221079921

63.

Umar

U. B.

, Masud

, & Matazu

S. A.

(2021). Direct and indirect effects of customer financial condition in the acceptance of Islamic microfinance in a frontier market. Journal of Islamic Marketing, 12(6), 1–18.

64.

Usama

K. M.

, & Yusoff

(2019). The impact of financial literacy on business performance. International Journal of Research and Innovation in Social Science, 3(10), 84–91.

65.

Uwah

U. E.

, Udoayang

J. O.

, & UKlala

P. A.

(2021). Post COVID-19 and the acceptance of financial inclusion as a new normal in financial transactions: Implications for Nigerian accountants and other financial service providers. Athens Journal of Business & Economics, 7, 1–21. 10.30958/ajbe.X-Y-Z

66.

Vasile

, Panait

, & Apostu

S. A.

(2021). Financial inclusion paradigm shift in the postpandemic period. digital-divide and gender gap. International Journal of Environmental Research and Public Health, 18(20), 10938.

67.

Yahaya

A. A.

(2021). Impact of microfinance bank services on the performance of small and medium scale businesses in north-central Nigeria. Kwara State University.

68.

Yoshino

, & Morgan

(2016). Overview of financial inclusion, regulation, and education (ADBI Working Paper 591). ADBI.

69.

Zahra

S. A.

, & Pearce

J. A.

(1989). Boards of directors and corporate financial performance: A review and integrative model. Journal of Management, 15(2), 291–334.

70.

Zauro

N. A.

, Saad

R. A. J.

, & Sawandi

(2020). Enhancing socio-economic justice and financial inclusion in Nigeria: The role of zakat, Sadaqah and Qardhul Hassan. Journal of Islamic Accounting and Business Research, 11(3), 555–572.