Modeling the Impact of Financial Literacy and Institutional Trust on Banking Inclusion in Bangladesh

Abstract

The purpose of this study is to examine the impact of financial literacy and institutional trust on banking inclusion in Bangladesh. It further assesses whether these relationships vary across gender and location. Using a quantitative approach, this study conducted a survey of 305 participants in rural, semi-urban, and urban areas of Bangladesh. The empirical analysis employed ordinary least squares regression with heteroscedasticity-robust standard errors, complemented by diagnostic testing, ordered logistic regression, split-sample validation, and subgroup analyses by gender and residential location. The results indicate that financial literacy is a universal and powerful predictor of banking inclusion across all demographic groups. On the other hand, the effect of institutional trust is heterogeneous, and it is only relevant among male cohorts in urban and semi-urban areas, suggesting that the process of trust-building depends on socioeconomic exposure. Also, the findings show that though trust is a factor, structural barriers remain the main factor to keep marginalized groups out of inclusion. The findings offer practical implications for policymakers and financial institutions in Bangladesh. The paper suggests that to ensure universal banking inclusivity, a two-pronged approach is needed: intensive financial literacy education, combined with institutional changes to address structural friction and re-establish confidence among underserved populations.