Financial literacy's role among formally employed adults in Solwezi district, Zambia: Income as the proximate determinant of personal loan approval

Résumé

Formal personal credit is widely recognized as a pathway to household financial resilience in sub-Saharan Africa. In Zambia, overall financial inclusion reached 69.4% in 2020; however, formal credit uptake remained limited for many adults, particularly in provincial districts where income-verified lending dominates the consumer market. This study examines the relationship between financial literacy and personal loan application decisions, approval outcomes, and repayment experiences among adults in Solwezi District, a rapidly urbanizing mining town in Zambia’s North-Western Province. The research is grounded in human capital theory and the theory of planned behavior. A convergent parallel mixed-methods design was used. Quantitative data were collected from 309 adults using structured questionnaires and analyzed through point-biserial correlations, chi-squared tests, and binary logistic regression across three nested models. The target population comprised all adults aged 18 years and above in urban and peri-urban Solwezi who were actual or potential users of personal loans from formal financial institutions. A multi-stage sampling design was employed. Qualitative data from 15 semi-structured interviews were analyzed thematically, with both strands integrated during interpretation. Financially literate adults were more likely to be approved at the bivariate level (rnb = .174, p = .002); however, income was the only statistically significant predictor of approval in multivariate models (OR = 2.107, 95% CI [1.55, 2.87], p < .001). Financial literacy was not a statistically significant independent predictor of approval (OR = 1.53, 95% CI [0.70, 3.33], p = .288). The wide confidence interval, ranging from 0.70 to 3.33, indicates that the non-significant result likely reflects limited statistical power rather than a true absence of effect. Financial literacy was not associated with the application decision (p = .841) nor with repayment difficulty among successful borrowers (p = .546). The overall model explained approximately 21% of the variance in loan approval (Nagelkerke R² = 0.207), suggesting that most determinants of formal lending decisions in this market extend beyond what standard survey predictors can capture. The 79% unexplained variance in approval implies that pre-application dropout among low-literacy adults may represent a critical, currently unmeasured barrier to credit access. Financial literacy appears to influence upstream borrowing behavior, particularly application preparation and lender selection, rather than directly affecting formal lender decisions in income-dominated consumer credit markets. These findings clarify the boundary conditions under which financial literacy influences formal loan approval, specifically highlighting the dominance of income in underwriting decisions within salaried consumer credit markets. This study provides the first district-level empirical evidence on the dynamics of personal loan acquisition in Zambia’s salaried consumer lending context. The study recommends targeted numerical literacy training, lender tracking of application abandonment, and district-level profiling to guide NFIS II (2024-2028) interventions.