Impact of financial literacy on access to credit by households in informal settlements in Nairobi

Abstract

Over the years, there has been the notion that financial illiteracy highly affects households' financial decision, access to credit and financial services. However, the extent to which financial illiteracy affects credit access, financial services and how household finances are utilized remains to be unknown. The concept of financial literacy has got more policy attention in many countries and more funding from all sources is being provided to assist in the development of financial education programs initiatives in informal settlements. The need to evaluate such programs is also increasing, but little evaluation is currently taking place and the unanswered question is on the effectiveness of the financial education, its effect on credit access, people's living standards mostly in informal settlements and its effect on credit access. The objective of this study was to evaluate the impact of financial literacy on access to credit by households in informal settlements in Nairobi. It also sought to gather information on the financial management skills used to manage personal finance by households in informal settlements, their financial literacy levels and its impact on credit access. To achieve this objective, the study involved four slums in Nairobi, which included Mathare, Kibera, Mukuru Kwa Njenga and Korogocho. The research design utilized was survey method and convenience sampling was carried out based on the relative number of households willing to participate. Data was organized, coded and analyzed using descriptive statistics and presented in form of ratios, tables, charts and graphs The study found out that households in the informal settlements in Nairobi have low financial literacy which largely hindered them from accessing credit from financial institutions, government and Nongovernmental institutions. The study gathered vital information to help the policy makers and patties concerned with financial education programs in decision making in solving challenges facing households in informal settlements, and also recommended further research in other formal and informal settlements in Kenya.