Financial literacy, financial inclusion and inclusive growth: a case of savings and credit cooperatives in Uganda

Inclusive growth has emerged as a central development objective as it promotes broad-based economic participation, reduces inequalities and enhances societal well-being. Unlike traditional growth paradigms that emphasise aggregate economic expansion, inclusive growth focuses on equitable access to opportunities, productive employment, social protection and institutional support (Onyina and Baye, 2024). These enable all segments of society to benefit from economic progress (Agarwal, 2024). By fostering human capital development, inclusive growth supports sustainable economic transformation via enhanced productivity, innovation and social cohesion (Tang, 2025). Consequently, governments and development agencies increasingly regard inclusive growth as both an economic necessity and a social imperative.

Financial sector interventions are widely recognised as vital mechanisms for advancing inclusive growth in developing economies. Among these, savings and credit cooperatives (SACCOs) have gained prominence as member-owned financial intermediaries. They mobilise savings, provide affordable financial services and promote financial inclusion and financial literacy among underserved populations (Esagala and Ntale, 2026). Supported by governments and development partners, SACCOs extend financial services to groups traditionally excluded from formal banking systems. These include rural communities, women, youth and low-income households (Bongomin et al., 2021; Mpiira et al., 2014).

Uganda provides a relevant context for examining the contribution of SACCOs to inclusive growth. The country has over 1,100 SACCOs alongside other microfinance institutions that vary in governance and operational efficiency (MFPED, 2016; Uganda Bureau of Statistics (UBOS), 2025). Through their local presence, member-centred orientation and growing adoption of financial technologies, SACCOs have expanded access to financial services. In the process, they reduce geographical and socioeconomic disparities to participation (Muhumuza, 2022). Consequently, these efforts contributed to a decline in financial exclusion in Uganda from 72% of adults in 2009 to 19% in 2023 (Eton et al., 2025; FinScope-Uganda, 2024; Uganda Bureau of Statistics (UBOS), 2025). Despite this progress, financial exclusion remains pronounced among women, youth, rural populations and residents of economically disadvantaged regions. Approximately 15% of Ugandan adults remain excluded from formal financial services, while exclusion rates are higher among women (46%) than among men (35%). Regional disparities are also substantial, with formal financial access varying widely, from 9% in the northern region to 42% in Kampala (Eton et al., 2025; FinScope-Uganda, 2024; Uganda Bureau of Statistics (UBOS), 2025; World Bank, 2021). These inequalities suggest that access alone may be insufficient to achieve inclusive growth unless individuals possess the knowledge, skills and confidence required to use financial opportunities effectively.

Accordingly, financial literacy has become a vital driver of inclusive economic participation. It encompasses awareness, knowledge, skills, attitudes and behaviours that enable individuals to make informed, sound financial decisions and enhance their financial well-being (Ahamed, 2025a; OECD, 2023). Hence, financially literate individuals are better more likely to evaluate financial products effectively, manage risks, accumulate savings, access financial services from SACCOs and engage in productive economic activities. Hence, translate them into tangible economic outcomes (Mwatondo and Wekesa, 2020). By reducing information asymmetries and strengthening financial decision-making, financial literacy promotes broader participation in economic opportunities and contributes to inclusive growth.

Similarly, financial inclusion is increasingly viewed as a catalyst for economic empowerment and social inclusion. An inclusive financial system provides affordable access to savings, credit, payment, insurance and related financial services (AFI, 2010; GPFI, 2011). These services enable individuals and businesses to invest productively, manage risks, smooth consumption and strengthen economic resilience. Financial inclusion reduces transaction costs, stimulates investment and entrepreneurship and facilitates technological adoption, thereby supporting sustainable development (Beck et al., 2016; Mbodj and Laye, 2025).

Despite the relevance of financial literacy and financial inclusion in promoting inclusive growth, evidence on their combined contribution to inclusive growth remains limited, particularly in developing countries. Existing studies have explored these variables, largely focusing on developed economies with less attention to developing contexts such as Uganda. Moreover, this is where financial exclusion and socioeconomic inequalities remain significant challenges (Lusardi and Messy, 2023; MFPED, 2016). Additionally, existing studies have mainly investigated financial inclusion as an outcome variable of financial literacy, overlooking its potential mediating role in linking financial literacy to broader development outcomes (Asif et al., 2023). Few scholars have used financial inclusion to predict economic growth (Ozili, 2023), poverty alleviation (Lee et al., 2023) and sustainable development in general (Kamau et al., 2024) with less attention to explaining inclusive growth. Scholars who have explored inclusive growth have focused on policy and regulatory frameworks (Thakkar, 2025) and ICT infrastructure (Nchake and Shuaibu, 2022). Thus, they pay less attention to financial literacy and inclusive growth.

To address these gaps, this study seeks to establish the mediating effect of financial inclusion in the association between financial literacy and inclusive growth using evidence from SACCO members in Uganda. The findings advance understanding of how financial literacy translates into inclusive development outcomes. They also contribute to theory and practice by providing evidence from a developing-country context where SACCOs play a key role in expanding financial access and economic participation. This study aligns with key development frameworks, including Uganda’s Vision 2040 and its fourth National Development Plan, the African Union’s Agenda 2063 and the UNs’ 2030 Agenda for Sustainable Development Goals (SDGs). In particular, the study directly contributes to SDGs-1 (no poverty), 2 (ending hunger), 5 (gender equality) and 8 (decent work and economic growth) by generating evidence on how financial literacy and financial inclusion can promote equitable economic participation, reduce poverty, enhance women’s economic empowerment and support productive employment (African-Union, 2020; Lafont et al., 2023; National Planning Authority, 2025; Yap et al., 2023). The other part of the paper covers the literature review, materials and methods, results and discussion and lastly, the conclusion.

This study is anchored in financial intermediation theory (FIT) and financial self-efficacy theory (FSET) to explain the relationships between financial literacy, financial inclusion and inclusive growth. The two theories provide complementary explanations by combining institutional and behavioural perspectives. While FIT explains how financial institutions facilitate access to financial services and economic opportunities, FSET explains how individuals use financial knowledge and financial services to improve their socioeconomic well-being.

FIT, developed by Gurley and Shaw, 1960, explains how financial institutions mobilise savings from surplus units and channel them to deficit units for productive investment. Financial intermediaries reduce information asymmetries, transaction costs and manage risks, thereby promoting efficient allocation of financial resources and economic development (Konstantakopoulou, 2023; Levine, 2021).

In developing economies such as Uganda, many households and MSMEs face challenges in accessing formal financial services. SACCOs play a critical intermediation role by mobilising savings, extending credit and providing other financial services within local communities (Bettzüge et al., 2022; Bongomin et al., 2020). Through these functions, SACCOs expand financial access and participation, thereby promoting financial inclusion. From the FIT perspective, financially literate individuals are better able to understand and use financial products and services offered by financial institutions. Consequently, financial literacy enhances financial inclusion, while increased access to and use of financial services facilitate investment, enterprise development, income generation and ultimately inclusive growth.

To complement the institutional perspective provided by FIT, this study adopts FSET, which is grounded in Albert Bandura’s Social Cognitive Theory (Bandura, 1977). FSET refers to an individual’s confidence in their ability to manage financial matters and make effective financial decisions. The theory argues that individuals who believe they can successfully perform financial tasks are more likely to engage in positive financial behaviours, persist in the face of challenges and achieve desired financial outcomes. Empirical evidence shows that financial self-efficacy promotes budgeting, saving, financial planning, responsible borrowing, investment and utilisation of financial services (Ahamed, 2025b; Liu et al., 2024). Financial literacy serves as an important source of this confidence because individuals who possess financial knowledge are more likely to understand financial products, evaluate alternatives and make informed financial decisions.

Within the SACCO context, financial literacy strengthens members’ confidence in using financial services, saving regularly, borrowing responsibly and investing productively. These behaviours increase participation in formal financial systems and enhance financial inclusion. In turn, greater financial inclusion improves income generation, asset accumulation, entrepreneurial activities and economic participation, as key dimensions of inclusive growth.

The integration of FIT and FSET provides a comprehensive explanation of the study variables. FIT explains the institutional mechanism through which SACCOs facilitate access to financial services and create opportunities for economic participation. FSET complements this perspective by explaining the behavioural mechanism through which financially literate individuals develop the confidence to use available financial services effectively. Together, the theories suggest that financial literacy enhances individuals’ financial capability and confidence, which encourages greater participation in formal financial systems. Increased financial inclusion then enables access to savings, credit, investment opportunities and other financial resources that improve livelihoods and broaden participation in economic growth. Therefore, the combined application of FIT and FSET provides a strong theoretical basis for explaining the direct effect of financial literacy on inclusive growth and the mediating role of financial inclusion in this relationship.

Financial literacy is a multidimensional concept encompassing the knowledge, skills, attitudes and behaviours required to make informed financial decisions and enhance financial well-being (Ahamed, 2025a; OECD, 2023). It refers to the ability to manage personal finances effectively and responsibly (Rieger, 2020). Also, it encompasses confidence in taking appropriate actions to achieve financial goals (Lown, 2011; National Financial Educators Council [NFEC], 2020; Rieger, 2020). Consistent with prior studies, this study conceptualises financial literacy through three interrelated dimensions: financial knowledge, financial attitudes and financial behaviours.

Human capital and financial self-efficacy theories suggest that financial literacy strengthens individuals’ capacity to make informed financial decisions and engage productively in economic activities. Financially literate individuals are better able to access and effectively use financial services, undertake productive investments, manage risks and accumulate assets, thereby contributing to inclusive growth (Muhumuza, 2022; OECD, 2023).

Financial knowledge improves individuals’ ability to evaluate financial products, allocate resources efficiently and pursue entrepreneurial opportunities that generate income and foster broader economic participation (Ali et al., 2021). Financial attitudes shape financial preferences and decision-making orientations. Positive attitudes encourage long-term planning, disciplined saving, prudent borrowing and responsible financial management, which strengthen household resilience and support sustained engagement in productive activities (Malhotra and Baag, 2021). Financial behaviours represent the practical application of financial knowledge and attitudes. Behaviours such as budgeting, regular saving, responsible debt management and investment planning enhance financial security and resilience. Evidence suggests that sound financial behaviours contribute to enterprise sustainability, entrepreneurship development and household well-being, particularly among micro and small enterprises that are central to inclusive growth (Ahamed, 2025a).

However, the relationship between financial literacy and inclusive growth is not universally consistent. Its benefits may be constrained by limited financial access, institutional weaknesses, poverty and persistent socioeconomic inequalities (OECD, 2023). Consequently, its contribution to inclusive growth depends on supportive financial and institutional conditions. Despite growing evidence linking financial literacy to financial inclusion and economic empowerment, its contribution to inclusive growth remains underexplored, particularly in Sub-Saharan Africa (Adedokun and Ağa, 2023). Limited evidence also exists on how SACCOs facilitate the translation of financial literacy into broad-based and equitable economic participation. This study therefore examines the relationship between financial literacy and inclusive growth within Uganda’s SACCO sector. Accordingly, the following hypothesis is proposed:

Financial inclusion is widely recognised as a key pillar of financial system development and inclusive economic growth in developing economies. It refers to affordable access and effective use of formal financial services, including savings, credit, payments and insurance (Bank of Uganda (BoU), 2023; McKillop and Wilson, 2015; World Bank, 2021). Despite improvements in Uganda, approximately 19% of adults remain financially excluded (FinScope-Uganda, 2024).

About 15% still lack access to any formal financial services (Bank of Uganda (BoU), 2023).

FIT suggests that inclusive financial systems reduce information asymmetries and transaction costs, thereby expanding economic participation (Beck et al., 2016; Allen et al., 2016). Financial inclusion hence enhances economic efficiency by integrating previously excluded individuals into formal financial markets. From a financial intermediation perspective, it improves resource allocation and mobilises idle savings into productive investment, which supports broader economic development (Demirguc-Kunt et al., 2018). However, critics argue that access alone does not guarantee meaningful economic transformation, particularly where financial capabilities and institutional quality remain weak (Sarma, 2015; Beck et al., 2016).

Financial inclusion is associated with inclusive growth through improved savings mobilisation, credit access and risk management. These channels enable households/members and small enterprises to smooth consumption and invest in productive activities (Kasekende, 2014; Sarma, 2015). Empirical evidence further shows that financial access improves consumption smoothing, investment capacity and allocative efficiency (Allen et al., 2016). These effects collectively support broader economic participation and growth. However, the impact of financial inclusion on inclusive growth is not uniform across contexts. Its effectiveness depends on complementary factors, such as financial literacy, institutional quality and appropriate financial products. In weak institutional environments, financial access may not translate into productive investment or sustained gains in well-being.

In Uganda, SACCOs mobilise rural savings and provide credit to underserved populations. They play a vital role in expanding financial access among the underserved populations and microenterprises (Kiiza and Omiat, 2021; Kyazze et al., 2017; Mpiira et al., 2014). Nevertheless, evidence on how SACCO-driven financial inclusion translates into productivity growth and structural transformation remains limited. Existing studies primarily examine the broader financial inclusion and inclusive growth pathway. However, how SACCOs translate financial inclusion into inclusive growth remains insufficiently understood (Sarpong and Nketiah-Amponsah, 2022). This limitation is particularly evident in Sub-Saharan Africa, where cooperative and informal financial institutions remain central to financial intermediation. Hence, this study examines the relationship between financial inclusion and inclusive growth within Uganda’s SACCO sector. Accordingly, the study proposes that:

Financial inclusion is widely regarded as a key mechanism through which financial literacy translates into economic and development outcomes. While financial literacy equips individuals with financial knowledge, skills and confidence, its benefits are often realised through access to and use of formal financial services (Bank of Uganda (BoU), 2023; OECD, 2023). Financially literate individuals are more likely to save, borrow, invest and manage financial risks when appropriate financial services are available. Consequently, financial inclusion can amplify the developmental effects of financial literacy by facilitating economic participation and empowerment (Allen et al., 2016; Koomson et al., 2023).

Theoretically, FIT explains how financial institutions mobilise savings and allocate resources to productive activities. FSET emphasises the role of individual confidence and capability in undertaking financial actions. Together, these perspectives suggest that inclusive growth is more likely when personal capability interacts with institutional access. Financial literacy may influence inclusive growth indirectly through financial inclusion.

Empirical evidence generally supports this proposition. Studies show that financially literate individuals are more likely to access and use formal financial services. This enhances entrepreneurship, asset accumulation and household well-being (Allen et al., 2016; Koomson et al., 2023). In cooperative financial systems such as SACCOs, financial inclusion facilitates savings mobilisation, credit access and participation in productive economic activities. These outcomes can contribute to broader and more equitable economic participation.

However, evidence on the mediating role of financial inclusion remains mixed. Access alone may not produce meaningful economic outcomes. This occurs where institutions are weak, products are unsuitable or users cannot effectively use financial services (Mader, 2018). Others suggest that financial literacy may exert direct effects on economic outcomes independent of financial inclusion. Digital financial innovations reduce transaction costs and geographical barriers. This expands opportunities for financially literate individuals to engage with formal financial systems (Kamau et al., 2024).

Despite growing interest in financial literacy and inclusion, evidence on their combined effects on inclusive growth remains limited. Most studies focus on direct relationships, with limited attention to mediation pathways. Empirical evidence on SACCO-based financial systems in developing economies is also limited, despite their key role in financial intermediation. This gap restricts understanding of their developmental contribution, particularly in Uganda. This study examines SACCO’s role in promoting inclusive growth outcomes via financial inclusion mechanisms. It specifically tests whether financial inclusion mediates the relationship between financial literacy and inclusive growth in Uganda’s SACCO sector. Accordingly, the following hypothesis is proposed:

This study used a correlational research design to examine the relationships between financial literacy, financial inclusion and inclusive growth. The study population comprised approximately 8,000, including 6,180 SACCO members drawn from 206 registered SACCOs, each with a minimum membership of 30 as stipulated by the Uganda Cooperative Act (1991) and Regulations (1992) as well as SACCO employees. A sample of 334 participants was determined using Cochran (1977). We used stratified, purposive, convenience sampling to select participants. Specifically, participants were categorised into homogeneous groups that included executives, supervisory committee members, employees and ordinary members. Thus, we applied proportionate sampling to ensure adequate representation across these stakeholder categories, while maintaining practical feasibility (Saunders et al., 2023). Ordinary members were further screened based on experience, willingness and availability to enhance the relevance and reliability of the collected data (Bernard, 2011). The absence of a comprehensive national sampling frame necessitated the application of non-probability sampling (Memon et al., 2025).

In this study, inclusive growth is the dependent variable measured in terms of productivity, member participation, economic opportunities and empowerment (Ali and Son, 2007; World Bank, 2009). Information from participants on the variables was obtained through a structured questionnaire designed on a five-point Likert scale. Hence, financial inclusion as the mediating variable was operationalised using access, usage and available quality financial services (Nogueira et al., 2025). Financial literacy, on the other hand, is the independent variable measured using financial knowledge, attitudes and behaviours (Hasan et al., 2021). The factor analysis scale comprised 15 items retained after EFA, with sample items including “I know profitable investment options” and “I know the mechanisms for monitoring loan use and repayment” (Cronbach’s alpha = 0.879). The 15 items were reduced to 11 items after confirmatory factor analysis (CFA). All scales met identification conditions; CFA yielded a good model fit. The instrument was pilot-tested to ensure clarity, validity, reliability and feasibility. Common method bias was minimised through careful item wording and assurance of participant anonymity.

In this study, a self-administered questionnaire was used to collect data from the SACCO members. The questionnaire was adapted from previously validated scales and anchored on a five-point Likert scale (Yahaya et al., 2018). We administered the questionnaires via a drop-off and pick-up approach, which facilitated the confidentiality and cost-effectiveness of the exercise (Sendawula et al., 2023). Before the final survey, a pilot exercise was conducted to ensure clarity, reliability and content validity. The instrument captures the demographic characteristics of the respondents, financial literacy, financial inclusion and inclusive growth. After data collection and cleaning, 232 valid responses were retained for the final analysis.

Instrument development followed a multistage validation process. The scale items were adapted from established measures (Yahaya et al., 2018). The instrument was reviewed by two academics, two practitioners and two policymakers to ensure clarity, contextual relevance and comprehensive content coverage. The resulting content validity index (CVI) exceeded 0.70 for all constructs. Construct validity was assessed through exploratory factor analysis, with all retained items meeting the minimum loading criterion of 0.50, as indicated in Table 1. Cronbach’s alpha ≥ 0.60, composite reliability (CR) ≥ 0.70 and average variance extracted (AVE) ≥ 0.50 threshold of which all the study variables were above the threshold. This indicates stable and reliable questionnaire measurement, as suggested by Hair et al. (2019).

Data were analysed using SPSSv-27 and PROCESS-Macro-v4.2. Descriptive statistics and Pearson correlations were used to examine the variable distributions and preliminary associations. Hierarchical regression analysis was used to assess the predictive effect of financial literacy and financial inclusion on inclusive growth. We tested the mediating effect of financial inclusion using PROCESS-Macro-v4.2 and bootstrapping.

Ethical approval was obtained from the School of Social Sciences Research Ethics Committee of Makerere University (MAKSS-REC-08.19.317) and the Uganda National Council for Science and Technology (SS409ES). Participants provided informed consent and were fully briefed on the study’s purpose, procedures and the voluntary nature of their involvement. They were assured of their right to withdraw at any stage without consequences (Kang and Hwang, 2023). Participants were assured of privacy, anonymisation and confidentiality through coded data management procedures (Ghanad, 2023). This study adhered to the institutional ethical guidelines and standards outlined in the APA (seventh edition).

The gender and educational levels of the participants are presented in Table 2.

Study results (Table 1) indicate 59.9% of the participants are male while 40.1% are female, reflecting relatively balanced gender distribution. Regarding educational attainment, the majority of the participants (28%) had a bachelor’s degree. This is followed by members (24.6%) have a diploma and 19.8% have a certificate. The least number of participants (3.5%) had a master’s degree. The study results showed that the participants had sufficient knowledge relevant to providing reliable and valid responses.

Pearson correlation analysis was conducted as a preliminary test to establish the relationship between financial literacy, financial inclusion and inclusive growth among SACCO members in Uganda, as presented in Table 3. The results show that financial literacy (r = 0.208, p < 0.01) and financial inclusion (r = 0.197, p < 0.01) are positively and significantly associated with inclusive growth among SACCO members in Uganda. Thus, changes in financial literacy and inclusivity are associated with positive developments in inclusive growth. This provides tentative support for H01 and H02 of this study. The low intercorrelations among predictors suggest minimal risk of common method variance in the study model.

Hierarchical regression was applied to test the direct effects of financial literacy and inclusion on inclusive growth, aligned with H01 and H02 in Table 4. Before estimation, diagnostic checks confirmed that regression assumptions were met. Durbin–Watson statistic (1.686) was within acceptable bounds, indicating independence of residuals (Field, 2018). Table 4 shows that all tolerance values exceeded the minimum 0.10 threshold, while all VIF values were < 10 threshold, ranging 0.966–0.978 and 1.023–1.036, respectively. Thus, the results confirm the absence of multicollinearity, ensuring stable parameter estimates and reliable inference.

Model I (Table 4) shows gender and education regressed as control variables, in line with the recommendations of Pallant (2026), who noted that controlling for potential confounders helps avoid biased conclusions. The model explained 0.7% of the variance (R² = 0.007, Adjusted R² = −0.002, ΔR² = 0.007). Additionally, education and gender are insignificant predictors of inclusive growth (β = 0.078, p > 0.05) and (β = 0.045, p > 0.05), respectively.

In Model II, financial literacy was added to the equation. The study results show that financial literacy contributes 5% of the change in inclusive growth (R² = 0.050, Adjusted R²= 0.037, ΔR² = 0.043). Hence, for a unit change in financial literacy, inclusive growth would improve by 0.207 units. The results indicate that financial literacy is a significant predictor of inclusive growth in Uganda (β = 0.207, p ≤ 0.01), hence rejecting H01. The findings are consistent with Koomson et al. (2023), who indicated that practical financial literacy is a significant drivers of asset accumulation, enterprise development and members’ well-being. These studies similarly argue that the ability to understand financial products and apply sound financial practices yields more tangible economic outcomes than attitudinal disposition alone.

These findings support FSET, which posits that financially competent and confident individuals are better positioned to improve their economic outcomes (Farrell et al., 2016). They also reinforce FIT, which suggests that financially knowledgeable members reduce information asymmetries, enabling SACCOs to mobilise savings and channel resources into productive investments that broaden economic participation (Allen and Santomero, 1998; Levine, 2005).

However, our results disagree with Potrich et al. (2018), who reported that there is a non-significance association between financial literature and inclusivity. This contrasts with research suggesting that positive variations in financial literacy often shape or precede responsible financial behaviours. This divergence may be attributed to the operational dynamics of SACCOs, where active financial engagements, such as consistent savings, responsible borrowing and adherence to loan repayment schedules, have a more immediate and measurable influence on members’ economic progress than attitudes that may not translate into concrete financial actions. Behavioural engagement appears to be a more direct catalyst for inclusive growth than attitudinal predisposition.

In Model III, financial inclusion was introduced into the equation. The results indicate that financial inclusion contributes 7.6% of the changes in inclusive growth (R² = 0.076, Adjusted R² = 0.059, ΔR² = 0.026). Thus, for a unit change in financial inclusion, inclusive growth would improve by 0.163 units. As such, our results indicate that financial inclusion is a significant antecedent of inclusive growth in Uganda (β = 0.163, p ≤ 0.01), thus rejecting H02.

The results demonstrate that financial inclusion plays a vital role in fostering inclusive growth among SACCO members. Additionally, the results highlight that when SACCO members have access to reliable, well-structured and customer-responsive financial services, they are more likely to experience improved financial outcomes. Thus, enhanced participation in productive activities strengthens well-being.

The results also indicate that financial inclusion supports inclusive growth by enabling SACCO members and small enterprises to mobilise savings, access productive capital, smooth consumption and accumulate assets, thereby reducing vulnerability to income shocks and reliance on informal credit markets (Kasekende, 2014; Sarma, 2015). This is supported by Allen et al. (2016), who report that expanded financial access improves consumption smoothing, investment capacity and allocative efficiency, which collectively stimulate economic growth. These outcomes are strongly in line with National financial inclusion strategies and SDGs-1, 2, 4, 5, 8 and 12 (Lafont et al., 2023; National Planning Authority, 2025; Yap et al., 2023).

The regression models explain 7.6% of the variance, suggesting that other factors not in this study account for the remaining 92.4%. Notably, financial literacy contributes slightly more to inclusive growth than financial inclusion (approximately 1.7%), underscoring the importance of Co-operative Principle No. 5 (education, training and information). By strengthening financial literacy, SACCOs empower members to make informed financial decisions and participate effectively in savings and credit activities. Additionally, effective governance processes strengthen mechanisms that support inclusive growth (Kadir et al., 2016). These findings support FSET, which posits that financial literacy enhances individuals’ knowledge, confidence and capacity to engage in financial markets (Ahamed, 2025b; Grohmann et al., 2018). They also corroborate evidence that financial literacy facilitates the use of formal financial services (Allen et al., 2016; Koomson et al., 2021). Although structural factors such as income and geographic constraints may exert a stronger influence on financial inclusion than literacy alone (Demirgüç-Kunt et al., 2018), the cooperative nature of SACCOs appears to mitigate access barriers, enabling financially literate members to use financial services more effectively.

This study examines whether financial inclusion mediates the relationship between financial literacy and inclusive growth (H03). Mediation analysis followed the steps of Baron and Kenny (1986). The results were validated using bootstrapping, which offers greater statistical power and reliability than the Sobel test (Zhao et al., 2010). The analysis was conducted using PROCESS Macro v4.2 (Hayes, 2022).

The results confirm that financial inclusion mediates the relationship between financial literacy (independent variable) and inclusive growth (dependent variable). Both direct and indirect effects were tested using 5,000 bootstrapped samples to establish the significance of the mediation. Tables 5–7 present the detailed results.

Table 5 presents results: Path-a (X → M): Financial literacy significantly predicted financial inclusion (b = 0.185, SE = 0.068, t = 2.709, p = 0.007; R² = 0.031). This indicates that higher levels of financial literacy are associated with greater access to and use of financial services.

Table 6 presents results: Path-b (M → Y): When both financial literacy and inclusion were entered into the model predicting inclusive growth, each remained a significant predictor. Financial literacy demonstrated a significant direct effect (b = 0.163, SE = 0.059, t = 2.756, p = 0.006), while financial inclusion also had a significant positive effect (b = 0.144, SE = 0.056, t = 2.559, p = 0.011), with the combined model explaining 7.0% of the variance (R² = 0.070).

These results suggest that financial inclusion not only contributes directly to inclusive growth but also functions as a mechanism through which financial literacy partially influences inclusive growth. Detailed coefficients, R and R² values, ANOVA statistics and standardised effects for each model are presented in Tables 5 and 6.

Table 7 shows mediation results: total, direct and indirect effects of financial literacy (predictor) on DV (outcome) and 95% confidence interval using the bootstrapping method.

Table 7 shows the direct effect of financial literacy on inclusive growth as significant (b = 0.163, SE = 0.059, t = 2.756, p = 0.006; 95% CI [0.046, 0.279]). Since the CI excludes zero, H4 (There exist no direct effect) is rejected. The “c” coefficient is significant at (p < 0.05). Financial literacy components (knowledge and behaviours) positively and significantly influence inclusive growth. Attitude is non-significant, consistent with previous regression results.

Table 7 shows that the indirect effect via financial inclusion is also significant (b = 0.027, BootSE = 0.017; 95% CI [0.001, 0.065]), indicating mediation. Given that CI includes zero, the mediation hypothesis is supported. The standardised indirect effect: (β = 0.029 (95% CI [0.001, 0.070]). Financial inclusion partially mediates the relationship, with the product of the paths (a × b = 0.027) being significant (p < 0.05).

Table 7 indicates that the total (sum of indirect (a*b) and direct (c) effects of financial literacy on inclusive growth is significant (b = 0.189, SE = 0.059, t = 3.219, p = 0.001; 95% CI [0.073, 0.305]). This indicates a positive overall influence, confirming mediated direct and indirect effects. Financial inclusion accounts for approximately 14.3% of the total effect of financial literacy on inclusive growth (PM = 0.027/0.189). Table 4 shows non-multicollinearity, given the analysis using R² of AVE Values, and Table 3 shows the correlation coefficient of the variables. There was a significant direct effect of the relationship (b = 0.163, p = 0.006).

The bootstrapping results confirmed significant partial mediation, demonstrating that financial literacy enhances inclusive growth both directly and indirectly through financial inclusion. This finding suggests that individuals with stronger financial literacy are more likely to access and effectively use quality financial services. This strengthens economic participation and overall well-being. Accordingly, the mediation analysis supported the rejection of H3. Financial inclusion partially mediates the relationship between financial literacy and inclusive growth. The indirect pathway is positive and statistically significant. The findings reinforce the theoretical assumption that improved access to appropriate financial services amplifies the effect of financial literacy on inclusive economic outcomes.

This suggests that financial literacy equips members with the capability to use available financial services more effectively, thereby enhancing their economic outcomes. The findings are consistent with Farrell et al. (2016) and Grohmann et al. (2018), who reveal that financially confident and knowledgeable individuals are better positioned to productively use financial resources, thereby supporting the FSET. Bongomin et al. (2023), Lone and Bhat (2024) and Tehran et al. (2025) reported that financial inclusivity mediated the association between financial literacy and well-being outcomes. However, results diverge slightly from those of studies reporting weaker mediation effects (Koomson et al., 2021). The finding suggests that cooperative and member-centric business models such as SACCOs may strengthen the translation of financial literacy into inclusive growth.

The results of financial literacy, as predictors of inclusive growth, yielded an adjusted R² of 0.076, indicating that 7.6% of the variation was explained by the financial literacy variables in the model. The remaining 92.4% were attributable to factors outside the scope of this study. Consistent with the regression findings had significant positive effects on inclusive growth. Financial literacy also strongly predicts financial inclusion, reinforcing the view that competence and confidence in financial matters facilitate the effective use of financial services. Financial inclusion partially mediates the relationship between financial literacy and inclusive growth. This reveals direct and indirect pathways via which literacy shapes members’ economic outcomes. Demographic factors, i.e. gender and education, were non-significant, suggesting that SACCOs offer equitable avenues for economic participation. Overall, the findings extend FIT and FSET, demonstrating that financial literacy, when combined with access to quality-designed financial services, plays a central role in fostering inclusive growth within SACCO contexts.

This study makes vital theoretical contributions to the literature on financial literacy and inclusive growth. The findings demonstrate that the effect of financial literacy on inclusive growth is not necessarily direct, supporting existing research that emphasises the role of intermediary mechanisms in translating financial capabilities into broader socioeconomic outcomes. The study extends the literature by establishing financial inclusion as a full mediating mechanism between financial literacy and inclusive growth. This finding introduces a structural perspective into the inclusive growth framework, highlighting the importance of access to and use of available quality financial services in converting financial literacy into developmental benefits. Unlike prior studies that primarily examine financial behaviours as the pathway linking financial literacy to financial well-being, this study identifies financial inclusion as a critical mechanism through which financial literacy influences inclusive growth. By integrating individual capability (financial literacy) with systemic access (financial inclusion), the study advances a more comprehensive theoretical framework for understanding how financial literacy contributes to equitable and sustainable economic development.

Based on these findings, financial literacy programmes should prioritise practical knowledge- and behaviour-focused interventions to equip members with practical knowledge and behavioural skills that directly strengthen financial decision-making. The interventions should be complemented with financial inclusion strategies, which emphasise the development of quality- and member-responsive financial products or tailored to members’ needs rather than focusing only on expanding service availability. Further, improving on the accessibility, usability and quality of financial services to strengthen members’ financial capabilities and economic participation. Additionally, digital payment platforms and financial management applications should be leveraged to enhance access to and usage of available quality financial services.

From a policy perspective, governments and regulatory authorities should integrate financial literacy and financial inclusion strategies, particularly for youths, women and other underserved groups. Regulatory and supervisory frameworks should aim to balance robust oversight with operational flexibility. Recognise the uniqueness of cooperative business model that underpins SACCO functionality. Given their demonstrated capacity to provide equitable access, SACCOs should promote equity and inclusiveness. This reinforces their role as gender-neutral and education-neutral financial platforms. Lastly, scaling up integrated digital financial services is essential to expand outreach and enhance efficiency. Also, bridge the gap between financial knowledge and behaviours and strengthen the overall long-term sustainability of the SACCO operations.

Like all investigations, this study has limitations that suggest directions for future research. Firstly, the geographical scope was limited to the selected districts, SACCOs and variables, restricting generalisability. A cross-sectional survey limited causal inferences. Reliance on self-reported quantitative data introduces potential response bias. The models accounted for 7.6% of the variance, while 92.4% was influenced by factors not examined in this study.

Future research should consider multi-source data and conduct comparative, longitudinal, mixed-methods or qualitative approaches. This helps to capture changes over time and deepens contextual understanding, enhancing validity and generalisability. Further, we can explore studies across SACCOs or related institutions to identify additional predictors which strengthen insights into inclusive growth.

The authors thank the Makerere University Research and Innovation Fund (MakRIF) administration and the Ugandan government for funding the study that led to the publication of this paper. The authors are also grateful to the anonymous reviewers.