Financial literacy, financial trust and financial performance of village savings and loan associations in Mbale district, Uganda

Abstract

Village savings and loan associations (VSLAs) ought to drive strong financial performance so as to continue extending financial service to the communities. The current study sought to establish the mediation effect of financial trust on the relationship between financial literacy and financial performance of VSLAs in Mbale District, Uganda. The specific objectives of the study were: to examine the effect of financial literacy on the financial performance of Village Savings and Loan Associations (VSLAs) in Mbale District; to assess the effect of financial literacy on financial trust among VSLAs in Mbale District; to establish the effect of financial trust on the financial performance of VSLAs in Mbale District, and to determine the mediating effect of financial trust in the relationship between financial literacy and the financial performance of VSLAs in Mbale District. A cross-sectional design was used and data was collected at one point in time. To ensure the validity and reliability of the research instruments, the study tested for content validity index and cronbach alpha coefficient and the data was valid and reliable. With a target population of 116 VSLAs, a sample of 90 VSLAs was selected using Yamane’s formula, and data were collected from VSLAs. The study used a structured questionnaire to gather data from VSLA members. The study was anchored on the theory of planned behavior to explain the relationship between the study variables. The data were analyzed using descriptive statistics, correlation and regression analysis. The findings revealed that financial literacy positively influence both financial trust and financial performance. Additionally, financial trust was a significant predictor of financial performance. The results further that financial trust partially mediates the relationship between financial literacy and financial performance. The study concluded that enhancing financial literacy and building financial trust within VSLAs can significantly improve financial performance. It is recommends that fostering financial education and trust-building practices within VSLAs can strengthen group cohesion and ensure sustained financial success.