FINANCIAL LITERACY AND DIGITAL INCLUSION: BRIDGING THE KNOWLEDGE GAP IN PAKISTAN’S RURAL ECONOMY: A CASE STUDY OF RURAL SINDH (MIRPUR KHAS, UMERKOT, AND THARPARKAR)

Abstract

This research investigates the impacts that Financial Literacy (FL) and Digital Inclusion (DI) have on the usage of Mobile Banking (MBU) and Financial Behavior (FB) of the residents of rural districts of Sindh, Pakistan, which include Mirpur Khas, Umerkot, and Tharparkar. Even with the considerable attention to Financial Inclusion, rural areas suffer from low adoption rates of Digital Financial services. Using a quantitative research approach and a sample of 330 respondents, data were analyzed with Partial Least Squares Structural Equation Modeling (PLS-SEM) to assess measurement and structural relationships.The results show that both FL and DI significantly predict MBU, with DI having a stronger influence, emphasizing the importance of technological access and digital skills. Also, FL, DI, and MBU have significant positive impacts on FB, which means that the combination of digital tools and knowledge positively impacts individuals’ actions with regard to saving, budgeting, and spending. Mediation analysis shows that MBU partially mediates the relationship of FL with FB and of DI with FB, which means that mobile banking serves as a significant behavioral enabler. Predictive accuracy (R² and Q²) also shows moderate to high explanatory power. Multi-group analysis also shows significant heterogeneity of the districts, whereby Mirpur Khas has the strongest DI→MBU and Tharparkar has the weakest, which can be explained by the lack of infrastructure. This study enriches the research on Financial Inclusion and combines the capability based (literacy) and access based (digital inclusion) with a single model. Practically, the findings suggest the need for targeted actions such as improving digital infrastructure, implementing localized financial literacy programs, simplifying mobile banking interfaces, and enacting policy reforms to foster the adoption of digital financial services in rural Pakistan. Future studies should look into long-term behavioral changes, include factors like trust and perceived risk, and expand sampling to other regions.

Keywords: Financial Literacy, Digital Inclusion, Mobile Banking, Financial Behaviour, PLS-SEM, Rural Pakistan.