Financial literacy and financial capability as drivers of financial inclusion among women traders in Zambia's informal markets: An empirical investigation

Abstract

This study investigates the direct and indirect effects of financial literacy on financial inclusion, mediated by financial capability, among women traders in Lusaka's informal markets, Zambia. The target population comprised 4,028 registered women traders across three major Lusaka markets - Lusaka Food Market, Lusaka City Market, and Soweto Market - with 273 women traders selected using stratified random sampling. The study was underpinned by three complementary theoretical frameworks: Sherraden's Financial Capability Framework, Ozili's Financial Literacy Theory of Financial Inclusion, and Sen's Capability Approach and employed a post-positivist mixed-methods sequential explanatory design. Structural equation modelling with 2,000-iteration bias-corrected bootstrapping was performed using AMOS 25. Results show that financial literacy significantly predicts financial capability (β = 0.497, p < .01) and that financial capability significantly predicts financial inclusion (β = 0.303, p < .05). The direct path from financial literacy to financial inclusion was statistically insignificant (β = 0.106, p = .334), indicating full mediation by financial capability (indirect effect = 0.250, p < .01). The structural model explained 44.5% of variance in financial inclusion (R² = 0.445). These findings underscore that financial literacy alone is insufficient for financial inclusion; practical capability development is the critical mediating mechanism. The study recommends institutionalised, skills-based financial capability programmes targeting informal women traders in Zambia, integrated with accessible institutional opportunity structures and aligned with the National Financial Inclusion Strategy II (2024–2028).