Financial Literacy: As A Tool For Enhancing Financial Inclusion Among Rural Population In Sri Lanka

: Financial Inclusion paves the way for unbanked population to the formal financial system. Throughout the financial inclusion process, un-bank population making their own financial transactions and having access to their financial resources, lead to financial well-being of them. Financial inclusion directly influences improvement in the development of the financial sector thereby achieving an inclusive growth. According to the endogenous growth theories, financial inclusion is the most significant determinant of inclusive growth of a country. Hence to develop the financial inclusion without having more exclusions, researchers and policy makers are interested to investigate the barriers of financial inclusion. Even though there are many other determinants of financial inclusion explored by previous researchers, financial literacy was identified as the most significant determinant in literature. Financial literacy is defined as a combination of financial awareness, financial knowledge, financial skills and financial attitudes. However, main argument of this study is whether financial literacy is a significant determinant of financial inclusion in Sri Lankan context. According to the country profile of little data book on financial inclusion in 2018, Sri Lankan majority (73%) of population are living in rural areas and they are relatively less financially literate. Therefore, the present study mainly focuses on exploring the impact of financial literacy on financial inclusion in rural communities in Sri Lanka. The sample for this study was drawn from families who are living in rural areas covering 25 Districts in the country. Altogether, 500 questionnaires were distributed and 450 completed questionnaires were selected for final analysis. There were 20 items taken as standard scales and employed to represents 4 main determinants to measure the financial inclusion i.e. financial access, usage, quality, and impact. The Financial literacy was then tested based on 25 items which were employed to determine the key factors such as financial awareness, financial knowledge, financial skills, financial attitude and financial behavior in respective to the formal financial system. The reliability was measured by Cronbach‘s Alpha coefficients for financial literacy measures. Data was collected through a researcher administrated questionnaire. The sample was selected based on the multilevel mixed sampling method and the unit of analysis was the households in rural areas representing 25 Districts of the country. Due to the formative nature of the dependent variable, the partial least squares structural equation model (PLS-SEM) was employed as the principle data analysis approach, Smart PLS 3 was employed as the main analytical software and descriptive analysis was done by using SPSS 22. The findings revealed that, the financial literacy has positive significant impact on financial inclusion in rural communities in Sri Lanka. However, when it was considered under separate dimensions, financial knowledge and financial attitudes have the most significant impact on financial literacy among rural communities. Based on the findings, the researchers concluded that financial literacy can be considered as a significant determinant of financial inclusion of rural communities in Sri Lankan context as well. Finally, the researchers provide some suggestions for government policy decision makers in order to overcome financial exclusion in Sri Lanka.