Impact of Financial Literacy on Bank Credit Allocation Across Industries: An Empirical Analysis of Its Economic Implications

Abstract

In discussing the impact of financial literacy on the allocation of bank credit in the sectors, the economic implication of the same has been highlighted in this paper. The financial literacy may be referred to as a complex of skills helping a person to be clear and informed in relation to financial assets and to acquire a disposition of referring to monetary institutions. Using the presented study, the impact of various rates of financial literacy on the distribution of the bank credit by the industries, and, in particular, small and medium-sized enterprises (SMEs), historically linked to the inability to finance it, will be investigated based on the empirical data. The study is based on the data of numerous sources (banking reports, industry-specific financial data, etc.) and with the help of the statistical method the relationship between the financial literacy and credit allocation patterns is estimated. It is argued in the discussion that financial knowledge is instrumental and important in enhancing creditworthiness, less information asymmetry and enhanced equal access to financial resources. The results show that the improved the credit conditions which the industries can secure due to their financial literacy, the more probable it is to attract more capital to grow and be innovative. On the other hand, the less financially literate constituencies would be discriminated because they would have to pay higher interest rates and gnurdling terms on loans and so may not form readily. The other economic implications of the findings, which are addressed in this paper, include economic growth, competitiveness and inclusion of financial inclination in the industry. Another way through which policymakers can contribute to better distribution of credits is by improving financial literacy in areas, hence maintaining a balanced economic growth.

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