Financial Literacy and Individual Over-Indebtedness in Rwanda: A Case of SACCO Wisigara Rangiro, Nyamasheke District 2015-2019

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Volume 10 - November 2021 (11)

Abstract

Background: The low participation of households in financial system is common in rural areas of Rwanda and other developing countries. Fear and limited access to financial institutions constitute major factors explaining this and it threatens household financial wellbeing. To address these threats the government of Rwanda adopted a new national financial policy in 2008 setting up Umurenge SACCOs however against their expected impact on improving household financial wellbeing, most borrowers in these financial institutions are over-indebted which increases their exposure to credit default risk. In 2019 umurenge SACCOs had the highest debt of Frw 5,587,021,359 in non-performing loans equivalent to 11.76% that is beyond the required threshold of 5% and some of these non-performing loans started being written-off. This is detrimental to economic development and causes social problems at a personal level as well as the economy at large. Therefore, the aim of this paper was to assess whether individuals with the higher level of financial literacy have better financial management skills, which reduces the risk of falling into over-indebtedness.
Method: The study adopted both qualitative and quantitative approaches to collect data from a sample of 357 respondents selected from the target population of 3279 clients using Solvin’s formula. 3 staff and 3 presidents of the board, audit and credit committees of SACCO Wisigara Rangiro were selected purposively. Data were collected using questionnaire and interview guide and analyzed using SPSS Pearson’s Correlation Test and Multinomial logistic regression model.
Results: To assess the level of financial literacy among U-SACCO clients under the period of study the researchers used the descriptive statistics. The results showed that on the total of 357 clients, 9 (2.5%), do not have knowledge related to financial literacy at all, 98 (27.5%) had financial knowledge, 81 (22.7%) had the financial skill, 58 (16.2%) had financial attitude, 75 (21.0%) had financial behaviour and 36 (10.1%) had financial awareness. To find out the extent to which financial literacy affects individual over-indebtedness among U-SACCO clients the researchers used Pearson Chi-Square test in SPSS. The results showed that the found value of this metric appeared to be 121.971, that is Pearson Chi-Square = 121.971 with a corresponding p-value =.001. With a cut-off (level of significance = 5%), the researchers noticed this p-value <.05, and thus there was an association of the financial literacy and individual over-indebtedness of the clients in the area under study. To establish the relationship between financial literacy and individual over-indebtedness among U-SACCO clients for the period under study. The researchers used Multinomial Logistic Regression Model. The results showed that in the training set of six explanatory variables, there were only three variables namely: education, financial literacy, and the time spent working with U-SACCO clients that contributed significantly to the outcome variable while others like monthly income, marital status, and gender were dropped from the model since they could not affect the individual over-indebtedness of clients of SACCO Wisigara Rangiro in the area under study.
Conclusion: The factor that could be taken first into consideration to overcome the individual over-indebtedness must be “education” towards the financial skills required in the loan-related businesses. Most people working with SACCO Wisigara Rangiro in the year under study had primary education, most of the clients of SACCO Wisigara Rangiro have financial literacy under the category of financial knowledge. There was a significant association between financial literacy and the individual over-indebtedness status of the clients under study. “Education” was the first variable that came before financial literacy in explaining the outcome variable, and the main factors that influence all the individual over-indebtedness status of the clients were found to be education, financial literacy and the time spent working with SACCO Wisigara Rangiro.

Keywords

Financial Literacy, and Over-Indebtedness

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Cite this Article:

Albert O. Maake, Financial Literacy and Individual Over-Indebtedness in Rwanda: A Case of SACCO Wisigara Rangiro, Nyamasheke District 2015-2019, American Based Research Journal 11(2021):10-22 DOI: 10.5281/zenodo.5797807