Impact of Financial Inclusiveness on Household Indebtedness: Special Reference to Jaffna and Trincomalee Districts

Abstract

Purpose: In recent years, policymakers and researchers have been increasingly interested in understanding household indebtedness. This study used survey data from Trincomalee and Jaffna districts to explore how financial inclusiveness affects household indebtedness. Design/Methodology/Approach: Likewise, this investigation employed data on penetration, barriers, and usage of financial services to construct a comprehensive index, amalgamating scores from each aspect to gauge overall financial inclusion. 200 responses were obtained through convenience from households in Trincomalee and Jaffna districts. Findings: The researcher conducted regression analysis and found a significant positive relationship between financial inclusiveness and the dependency ratio, a negative marginal relationship with debt performance, and no relationship with the consumption yield balance. The study also revealed that financial inclusion significantly impacts household indebtedness and identified three influencing dimensions. Moreover, they observed that financial literacy has dual effects, with financially literate individuals displaying better market behavior, while financially illiterate individuals accumulate more debt due to income shocks. The study aims to fill the literature gap and contribute to understanding the financial landscape of a developing nation like Sri Lanka. Originality: The study, which focuses on the Sri Lankan districts of Trincomalee and Jaffna, offers context-specific insights into the relationship between financial inclusion and family debt in a developing country.