FINANCIAL PRODUCT DESIGN AND FINANCIAL INCLUSION IN MICROFINANCE INSTITUTIONS IN RWANDA A CASE STUDY OF GOSHEN FINANCE PLC

Abstract

The general objective of this study was to assess the effect of financial product design, the financial literacy on the financial inclusion by microfinance institutions in Rwanda, specifically within the Goshen Finance Plc. This study had the following objectives, to examine the effect of financial product design on financial inclusion in Goshen Finance Plc, to examine the effect of financial literacy on financial inclusion in Goshen Finance Plc, and to establish the moderating effect of financial literacy between the financial product design and the financial inclusion in Goshen Finance Plc. This Study was supported by the Social Learning Theory, the Prospect Theory, Theory of Empowerment, and the Finance – Growth Theory. This research is census research design, and the study population comprise 169 customers of Goshen, sampled using simple random sampling technique. The researcher used primary data in this study. A closed end questionnaire was utilized. Descriptive research design and correlation analysis were utilized to assess the data and results generalized for the entire population, while multiple regression was used to test hypotheses. To compute and analyze the data in this study, available statistical product for service solution (SPSS 27) was used. The multiple regression proved that financial product design (centric approach, product feature, and affordability) contributes 32.4% on financial inclusion in Goshen Plc. The F calculated was 53.615 and the p-value was 0.001, which was less than the significance level (0.05). Other factors being constant, 1% increase in customer centric approach, product feature, and affordability would lead respectively to 0.224 units, 0.320%, and 0.437% increases on financial inclusion in Goshen Plc. The model 2 revealed that financial literacy contributes 53.3% on financial inclusion in Goshen Plc. Further, an F-statistics of 27.340 showed that the model of the study was significant as evident by the significance level of 0.000 < 0.05. Other factors being constant, 1 unit increase in financial decision making will lead to 0.290 units increase on financial inclusion in Goshen Plc, while 1 unit increase in Risk management will lead to 0.508 units increase on financial inclusion in Goshen Plc. On the basis of findings, all hypotheses were accepted at 5% level of significance due to the fact that the results indicated that there is positive and significant effect between variables. The study recommends that GOSHEN PLC ensure that the loan repayment be favorable to its customer in order to ensure its repayment, and to provide teachings or training to its customers in relation of computing interest rates in order to ensure they acquire enough financial literacy, which may enhance more financial inclusion in the MFI.The interaction between financial product design and financial literacy revealed that a joint unit increase in the interaction between financial literacy and financial product design increases financial inclusion levels by 0.207 units.