ArticlePDF Available

Access to Finance and Performance of Small Firms in South Africa: the Moderating Effect of Financial Literacy

Authors:

Abstract and Figures

The failure rate of small medium and micro enterprises (SMMEs) is very high in SouthAfrica. One of the challenges faced by SMMEs is inaccessibility to external finance. There is ageneral low level of financial literacy amongst small business owners in South Africa leading to illinformed financial decisions. Financial literacy is an important knowledge resource for financialdecision-making but little research has focused on how financial literacy affects the performance ofSMMEs. The aim of the study was to examine if financial literacy moderates the relationship betweenaccess to finance and performance of SMMEs in South Africa. The cross-sectional survey methodwas used for data collection in a quantitative study. Descriptive statistics, Pearson correlation andhierarchical regression were used for data analysis. The Cronbach’s alpha was used as a measure ofreliability. The findings indicated that the relationship between access to finance and financial literacyis significant. The findings also showed that financial literacy moderates the relationship betweenaccess to finance and performance of SMMEs. Empirically, the study added to the body of literatureon financial literacy, access to finance and performance of SMMEs. Practically, recommendations toimprove the financial literacy of SMMEs are suggested.
Access to Finance and Performance of Small Firms In South
Africa: The Moderating Effect Of Financial Literacy
OLAWALE FATOKI
Department of Business Management, University of Limpopo, Private Bag X1314,
Sovenga, 0727, SOUTH AFRICA
Abstract: The failure rate of small medium and micro enterprises (SMMEs) is very high in South
Africa. One of the challenges faced by SMMEs is inaccessibility to external finance. There is a
general low level of financial literacy amongst small business owners in South Africa leading to ill-
informed financial decisions. Financial literacy is an important knowledge resource for financial
decision-making but little research has focused on how financial literacy affects the performance of
SMMEs. The aim of the study was to examine if financial literacy moderates the relationship between
access to finance and performance of SMMEs in South Africa. The cross-sectional survey method
was used for data collection in a quantitative study. Descriptive statistics, Pearson correlation and
hierarchical regression were used for data analysis. The Cronbach’s alpha was used as a measure of
reliability. The findings indicated that the relationship between access to finance and financial literacy
is significant. The findings also showed that financial literacy moderates the relationship between
access to finance and performance of SMMEs. Empirically, the study added to the body of literature
on financial literacy, access to finance and performance of SMMEs. Practically, recommendations to
improve the financial literacy of SMMEs are suggested.
Keywords: financial literacy, access to finance, performance, SMMEs, moderating, South Africa
1. Introduction
Small and medium and micro enterprises
(SMMEs) play an important role in the
economies of countries around the world.
SMMEs generate employment and value
added and contribute to the gross domestic
product (GDP). SMMEs are crucial to the
efforts of governments to achieve a more
inclusive growth. In the Organisation for
Economic Co-operation and Development
(OECD) countries, SMMEs are the main form
of enterprise, accounting for approximately
99% of all firms. SMMEs contribute about
70% of jobs and generate between 50% and
60% of value added [1]. In developing
countries, SMMEs are a major contributor to
employment generation, economic
empowerment and social wellbeing of the
majority of the citizens. SMMEs contribute
about 40% of the GDP and 60% of total
employment in developing economies. It is
estimated that 600 million jobs will be needed
by 2030 to absorb the increasing global
workforce and this makes SMME
development a major priority for many
governments around the world [2, 3]. In South
Africa, the SMME sector accounts for 98.5%
of all firms but only firms contribute 28% of
all jobs [4]. One of the reasons for the low
contributions of SMMEs to job creation in
South Africa is their high failure rate. This is
because when SMMEs fail, jobs are lost. The
high failure rate of SMMEs paints a bleak
picture of the sector's ability to contribute
significantly to job creation, the reduction of
poverty and income inequality and economic
growth in many developing countries. SMMEs
continue to be as economically fragile and
about 70% of emerging small businesses fail
within the first two years of operation. The
number of SMMEs and their contribution to
employment continue to decline yearly. Thus,
South Africa’s SMME sector is an outlier
internationally in respect of its contribution to
employment and the GDP [4, 5]. The growth
of SMMEs is hindered by many factors
including lack of managerial skills, regulations
and inaccessibility to external finance [6].
SMMEs suffer change from a financing gap
which means that that there are significant
numbers of SMMEs that cannot obtain finance
from the formal financial system. Access to
finance is the second most reported obstacle to
the growth of SMMEs in developing countries
[2, 7]. Most SMMEs are managed by the
owners and their success or failure is
dependent on the resources available to the
owners. These resources include financial
literacy [3, 8,]. According to [9], financial
literacy measures how well an individual can
understand and use personal finance-related
WSEAS TRANSACTIONS on BUSINESS and ECONOMICS
DOI: 10.37394/23207.2021.18.9
Olawale Fatoki
E-ISSN: 2224-2899
78
Volume 18, 2021
information. Financial literacy includes the
ability and confidence of an individual to use
his/her financial knowledge to make financial
decisions. There is a general low level of
financial literacy amongst individuals and
small business owners in South Africa leading
to ill-informed financial decisions. The role of
SMMEs in creating employment and
stimulating economic growth has been
hampered by lack of access to finance from
formal financial institutions and this can be
attributed to the level of financial literacy
amongst SMME owners and managers [10,
11]. However, research on the role of
financial literacy in transforming access to
finance to improved performance is limited
[12]. According to [13], extant research
generally agrees that SMMEs have constrained
access to external finance. However, most
studies have focused on supply side
institutions, information asymmetry and the
use of collateral to reduce default risk. This
approach fails to take into consideration the
effect of financial literacy in improving access
to finance and performance of SMMEs. [14]
point out that the role of knowledge-based
resources in improving the sustainability of
small businesses is a current topic of debate.
Financial literacy is an important knowledge
resource for financial decision-making but
little research has focused on how financial
literacy affects the performance of SMMEs.
The aim of this study is to investigate the
effect of financial literacy on access to finance
and performance relationship of SMMEs.
Thus, this study will examine if financial
literacy moderates the relationship between
access to finance and performance of SMMEs
in South Africa. To achieve the main
objective, the study will also investigate the
impact of access to external finance on
performance, the effect of financial literacy on
access to finance and the influence of financial
literacy on the performance of SMMEs. This
research will contribute to the literature on
financial literacy, access to finance and
performance of SMMEs in the following
ways. First, limited studies [11, 12] have
examined the moderating effect of financial
literacy on access to finance and performance
and to the best of the author’s knowledge none
from the South Africa. The findings of this
study will extend research on how financial
literacy affects access to finance and
performance of SMMEs from a developing
country perspective where extant research has
been very limited. Second the research
findings will provide SMME owner-managers
and policymakers with information on how
financial education and skills can improve the
performance of SMMEs. The study is
organised as follows: Section two will provide
the review of the literature and the
development of the conceptual framework and
hypotheses. Section three will focus on the
research methodology and measures. The
presentation of results and discussion will be
done in sections four and five. The conclusion,
implications, limitations and areas for further
study will be presented in section six.
2. Problem formulation
2.1 Definition of small, medium and
micro enterprises in South Africa
The National Small Business Act of 1996, as
revised in 2003, defines a small business as “a
separate distinct entity including cooperative
enterprises and non-governmental
organisations managed by one owner or more,
including branches or subsidiaries if any is
predominately carried out in any sector or
subsector of the economy mentioned in the
schedule of size standards”. There are three
enterprise classes for SMEs in South Africa.
These are micro, small and medium. The
quantitative definition focuses on the number
of employees and total annual turnover [15]
(Government Gazette, 2019). The number of
employees is one of the indicators that is used
to classify SMMEs in South Africa.
Quantitatively, a micro enterprise will have
between 0 and 10 employees, small enterprises
between 11 and 50 employees, and medium
enterprises between 51 and 250 employees
[15].
2.2 Access to debt finance and
performance of SMMEs
[16] remark that access to debt finance is
linked with the ability of an enterprise to
obtain financial services. Access to external
finance is an important factor in ensuring
business growth through the financing of
existing and new investment projects. An
ecient investment can only be achieved
when a firm does not face credit obstacles.
[17] points out that the majority of small
WSEAS TRANSACTIONS on BUSINESS and ECONOMICS
DOI: 10.37394/23207.2021.18.9
Olawale Fatoki
E-ISSN: 2224-2899
79
Volume 18, 2021
businesses in countries in the South African
Development Corporation (SADC) depend on
owners’ capital especially at the start-up stage.
However, owners’ capital is often inadequate
and limits the operation of SMMEs. This
underfunding can lead to stagnation or failure.
The major sources of external finance are
equity and debt. However, access to equity is
limited for many SMMEs in South Africa
[18]. [19] agree that the lack of external
equity makes many SMEs dependent on debt
financing. Paradoxically, access to debt
finance is also limited for SMMEs [20].
Therefore, lack of access to finance is a
serious impediment to start-up and growth of
SMMEs. [21] find that access to debt finance
positively impacts on the performance of
Zimbabwean SMMEs. According to [16], one
of the ways that access to finance can impact
on firm performance is through improvement
in productivity. The results of the study show
that improving financial accessibility has a
significant positive impact on the total factor
productivity of SMMEs. [22] also find a
positive relationship between access to
finance, firm productivity and export intensity
of small firms. SMMEs need external finance
for daily operations and to invest in profitable
projects and technologies that can improve
their competitiveness. Therefore, financing
constraints can hamper the performance of
SMMEs. It is hypothesised (H1) that there is a
significant positive relationship between
access to finance and the performance of
SMMEs.
2.3 Financial literacy and access to debt
finance by SMMEs
Huston [9] describes financial literacy as
measuring how well an individual can
understand and use personal finance-related
information. [32] defines a financially-literate
SMME owner as one that has an adequate
level of personal finance skills and an
appropriate level of understanding of
functional financial management systems. [8]
find that the financial literacy of is one of the
important factors in the understanding and use
of financial services by SMMEs. A low level
of financial literacy can prevent SMME owner
from understanding and assessing financial
products from financial institutions. Financial
literacy positively affects the production of
financial statements. A small business that
produces financial statements has a higher
probability of loan approval and repayment
and a lower probability of failure [13, 23, 24].
Financial literacy can help the owners of
SMMEs to understand both traditional and
alternative financing sources like
crowdfunding and to diversify financial
instruments [25]. Consequently, it is
hypothesised (H2) that there is a significant
positive relationship between financial literacy
and access to finance by SMMEs.
2.4 Financial literacy and performance
of SMMEs
[26] claim that a good financial foundation of
the owners of SMMEs is a significant
barometer of success. Financial literacy
improves access to finance and success of
SMMEs. The theoretical link between
financial literacy and performance can be
linked to the Resource Based View (RBV)
theory [27]. According to the RBV, managers
should focus on a firm's internal resources in
order to identify those capabilities,
competencies and assets that can bring
superior competitive advantages. Tangible
resources include financial capital and
physical capital whilst intangible resources
consist of knowledge, skills and experiences
[28]. Financial literacy is a resource that a firm
can utilise to generate competitive advantage
[29]. Financial literacy influences a firm’s
selection, use and management of financial
assets and the effectiveness of financing
decisions and strategy [12, 26]. Good
financing and investment decisions by
financially literate owners can impact on the
liquidity, solvency and profitability SMMEs. It
is hypothesised (H3) that there is a significant
positive relationship between financial literacy
and the performance of SMMEs.
2.5 Financial literacy moderates the
relationship between access to debt
finance and performance of SMMEs
[12] assert that the financial capability of firm
owners is a resource that can be regarded as
valuable, rare and inimitable and influences
both access to debt finance and performance of
SMMEs. Access to finance can be linked to
dynamic capabilities that can affect firm
performance. A high degree of financial
WSEAS TRANSACTIONS on BUSINESS and ECONOMICS
DOI: 10.37394/23207.2021.18.9
Olawale Fatoki
E-ISSN: 2224-2899
80
Volume 18, 2021
literacy can give small business owners access
to knowledge and information about how to
obtain finance which in turn can lead to
competitive advantage and superior
performance. Lack of financial literacy can
lead to bad financial decisions with negative
consequences on a firm’s operation, financial
structure and mission [13]. According to [12],
financial literacy positively enhances access to
finance and performance relationship of small
businesses in Ghana. Financial literacy can
enable the effective conversion of access to
finance into improved firm performance. [11]
find a significant positive moderating effect of
financial literacy in the relationship between
access to finance and growth of SMMEs in
Uganda. The application of financial
knowledge and skills can help SMMEs to
obtain financial resources, generate
competitive advantage and improve
performance. It is hypothesised (H4) that
financial literacy moderates the relationship
between access to finance and performance of
SMMEs.
2.6 Research methodology
The study used a positivistic research
paradigm and a quantitative research
approach. Data was collected through the
cross-sectional survey approach. The
population comprised of the owners of all
SMMEs in the Gauteng and Limpopo
Provinces of South Africa. The survey was
conducted in the Central Business Districts of
Johannesburg (Gauteng Province) and
Polokwane (Limpopo Province) of South
Africa. The areas were used for the survey
because they contain a large number of
SMMEs. Currently, there is no national
database or list of small businesses in South
Africa or in the Gauteng or Limpopo
Provinces, therefore the purposive sampling
technique was used to identify survey
participants. The use of non-probability
sampling method is consistent with previous
empirical studies on SMMEs in South Africa
[18, 34]. The phone numbers and Email
addresses of the participants were obtained
during the distribution of questionnaires.
Three field agents assisted in the data
collection process and data collection took
place between May and September, 2019.
Repeated phone calls, emails and visits were
made to the participants to complete the
questionnaire. If the questionnaire is not
completed after two months, it is treated as
non-response. A pilot study was conducted on
the survey instrument used in this research
with 30 SMME owners in order to ensure face
and content validity. The pilot study was done
before the actual data collection and the
respondents of the pilot study did not
participate in the actual survey. The
questionnaire was divided into four parts: (1)
biographical information; (2) access to finance
(3) financial literacy and (4) firm financial
performance. Descriptive statistics, Pearson
correlation and hierarchical regression were
used for data analysis. The Cronbach’s alpha
was used as a measure of reliability. For
ethical, consideration, the purpose of the study
was clearly specified in the questionnaire,
participation was voluntary, and
confidentiality and anonymity were ensured.
The variables in the study were measured as
follows: Subjective questions were used to
measure the performance of SMMEs. Three
questions (growth in profitability, turnover
(sales) market share) and anchored on the five
point Likert scale (1 significant decline” to “5
significant increase” in the prior year) were
used to measure financial performance. The
responses to the three questions are summed to
obtain the average financial performance. This
is consistent with similar studies [12, 26], The
Cronbach’s alpha of the scale was .76,
indicating high reliability of scale [30]. Four
questions were used to measure the financial
literacy of SMME owners. (1) we prepare
monthly company financial statement (income
statement and balance sheet); (2) we review
monthly financial statements; (3) we perform
financial analysis on monthly financial
statements; and (4) we have an understanding
of the company’s gross profit ratio and its
contribution to the overall profit. A five-point
Likert scale with anchored on “1 ‘strongly
disagree’ and ‘5 strongly agree’ was used to
measure financial literacy. The responses to
the four questions are summed to obtain the
average financial literacy. This is consistent
with studies [12, 13]. The Cronbach’s alpha of
the scale was .80, indicating high reliability of
scale. Two questions were used to measure
access to debt finance (1) access to bank credit
and (2) access to trade credit. A five-point
Likert scale with anchored on “1 ‘totally
dissatisfied and 5 totally satisfied was used to
measure access to debt finance [33]. The
WSEAS TRANSACTIONS on BUSINESS and ECONOMICS
DOI: 10.37394/23207.2021.18.9
Olawale Fatoki
E-ISSN: 2224-2899
81
Volume 18, 2021
responses to the two questions are summed to
obtain access to debt finance. The Cronbach’s
alpha of the scale was 0.77, indicating high
reliability of scale.
3 Problem solution
3.1 Response rate and biographical details
Table 1. Biographical information of the respondents.
Biographical Characteristics
Educational qualification of owner/manager
Frequency
Below Matric
Matric
PostMatric qualifications
Gender
Female
Male
Age of the owner (years)
Less than 20
2030
3140
4150
Above 50
Age of the firm (years)
15
6-10
Above 10 years
Number of employees
0-10
11-50 employees
Sector of the respondents
Retail 92
Service 83
Four hundred and fifty questionnaires were
distributed to small business owners and one
hundred and seventy-five questionnaires were
returned. The response rate was 39%. The
biographical details as presented in table 1
included both owner and firm characteristics.
Owner characteristics included the level of
education, gender and age of the respondents.
Firm characteristics included the age of the
firm, the number of employees and the sector.
WSEAS TRANSACTIONS on BUSINESS and ECONOMICS
DOI: 10.37394/23207.2021.18.9
Olawale Fatoki
E-ISSN: 2224-2899
82
Volume 18, 2021
The results indicated that the majority of
respondents in the survey are male, with
Matric qualification and in the 31-40 age
group. In additions, most of the firms that
participated in the survey have been in
existence for between six and ten years,
employ between 0 and 10 employees and are
thus micro businesses according to the
National Small Business Act. In addition, the
majority of firms that participated in the
survey are in the retail sector.
3.2 Descriptive statistics and Pearson’s zero order correlation matrix
Table 2 Descriptive statistics and Pearson’s zero order correlation matrix
Variable
Mean
Standard
deviation
1
2
3
Access to debt
finance
3.405
1.014
1
Financial
literacy
2.810
1.113
0.599*
1
Performance
3.350
1.026
0.504*
0.755**
1
*significant at 5%; ** significant at 1%.
3.3 Hierarchical regression results
Table 3 Hierarchical regression results
Variable
Model 1
Model 2
Performance
Model 3
VIF
Tolerance
Constant
2.684
1.375
0.729
Access to
finance
(main effect)
0.199
0.206*
0.183**
1.026
0.682
Financial
literacy
(moderator)
0.708*
0.491**
1.137
0.739
Interaction term
0.162**
1.119
R2
0.052
0.178
0.253
Change in R2
0.164
0.075
Change in F
5.947*
28.715**
0.275
*significant at 5%; ** significant at 1%
Table 2 depicts the results of the descriptive
statistics and Pearson correlation. Matrix. The
results indicated that the mean of financial
literacy is 2.810 while the means of access to
debt finance (3.505) and performance (3.550).
The standard deviations of all the constructs
ranged from 1.014 to 1.13 reflecting
significant variability in the data set. The
results of Pearson correlation and hierarchical
regression. Collinerarity statistics show that
tolerance is > 0.1 and VIF < 10 for all
variables. The results of Pearson correlation
(r=0.504, p <0.05) and hierarchical regression
=0.183, p<0.01) indicate a significant
positive relationship between access to debt
finance and performance of SMMEs. H1 is
supported. In addition, the results (r=0.599 p
<0.05) and β =0.708, p<0.05) indicate a
significant positive relationship between
finance literacy and access to debt finance by
SMMEs. H2 is supported. The results
(r=0.755, p <0.01) and =0.491, p<0.01)
indicate a significant positive relationship
between financial literacy and performance of
SMMEs. H3 is supported. The hierarchical
regression (table 3) was used to show the
effects of both the independent (access to
finance and moderator (financial literacy)
variables on the dependent variable
(performance). The study followed the
WSEAS TRANSACTIONS on BUSINESS and ECONOMICS
DOI: 10.37394/23207.2021.18.9
Olawale Fatoki
E-ISSN: 2224-2899
83
Volume 18, 2021
mediation steps as analysed by [35, 36, 37].
The results =0.162, p<0.01) show that the
interaction effect between financial literacy
and access to finance is significantly positive.
In addition, the results indicate that the
interactive term of including financial literacy
as a moderator increases the main effect
(access to finance) by 7.5% to explain
variation in performance (change in R2 =
0.075). Also the inclusion of the interactive
term between access to finance and financial
literacy boosted the predictive power of access
to finance from 0.178 to 0.253 (a change of
7.5%). Thus it can be concluded that financial
literacy significantly moderates the
relationship between access to finance and
performance of SMMEs. H4 is supported.
3.4 Discussion
The study examined if financial literacy
moderates the relationship between access to
debt finance and performance of SMMEs in
South Africa. In addition, the study
investigated the impact of access to external
finance on performance, the effect of financial
literacy on access to finance and the influence
of financial literacy on the performance of
SMMEs in South Africa. The findings of the
study showed a significant positive
relationship between access to debt finance
and performance of SMMEs. Hypothesis one
of the study is accepted. of the study is
supported. The results support a positive
relationship between access to finance and
performance of SMEs. This is especially
important because many SMMEs are unable to
secure adequate debt finance to fund projects
with positive present values. Access to
external finance is an important factor in
ensuring business growth through the
financing of existing and new investment
projects. An ecient investment can only be
achieved only when a firm does not face credit
obstacles. In addition, access to equity capital
is also limited for SMMEs and the availability
of debt finance is important to finance growth-
enhancing projects. The findings are consistent
with the results of previous empirical studies
[16, 21, 22] that access to external finance is
an important factor in ensuring business
growth through the financing of existing and
new investment projects. Therefore,
inaccessibility to external finance is a serious
impediment to the growth of SMMEs [31].
The findings of the study showed a significant
positive relationship between financial literacy
and access to finance by SMMEs. Hypothesis
two of the study is supported. The findings are
consistent with the results of previous
empirical studies. [8] find that the financial
literacy of is one of the important factors in the
use of financial services by SMMEs.
Financial literacy positively affects the
production of financial statements and leads to
a higher probability of loan approval.
Financial literacy can help the owners of
SMMEs to understand both traditional and
alternative financing sources [25]. The
findings of the study showed a significant
positive relationship between financial literacy
and the performance of SMMEs. Hypothesis
three of the study is supported. [26] establish
that financial literacy improves access to
finance and success of SMMEs. Small
business owners can use financial literacy to
obtain financial resources which can help to
generate competitive advantage and improve
performance [29]. In addition, financial
literacy influences the selection, use and
management of financial assets and the
effectiveness of the financing decisions [26].
The findings of the study indicated that
financial literacy moderates the relationship
between access to finance and performance of
SMMEs in South Africa. Hypothesis four of
the study is supported. [12] find that financial
literacy positively enhances the access to
finance and performance relationship of small
businesses in Ghana. Financial literacy enables
the effective conversion of access to finance
into improved performance. The results of the
study by [11] also reveal a significantly
positive moderating effect of financial literacy
in the relationship between access to finance
and growth of SMMEs in Uganda. The
application of financial knowledge and skills
can help SMMEs to obtain financial resources
which leads to improved performance.
3. Conclusion
The SMME sector although accounts for
98.5% of all but only contribute 28% of all
jobs in South Africa. One of the reasons for
the low contributions of SMMEs to job
creation in South Africa is their high failure
rate. The performance of SMMEs is hindered
by many factors including lack of access to
WSEAS TRANSACTIONS on BUSINESS and ECONOMICS
DOI: 10.37394/23207.2021.18.9
Olawale Fatoki
E-ISSN: 2224-2899
84
Volume 18, 2021
external finance. Therefore, it is important to
examine the factors that can improve the
performance of SMMEs.The study examined
if financial literacy moderates the relationship
between access to finance and performance of
SMMEs in South Africa. In addition, the study
investigated the impact of access to external
finance on performance, the effect of financial
literacy on access to finance and the influence
of financial literacy on the performance of
SMMEs in South Africa. The findings
indicated that the relationship between
financial literacy and access to finance by
SMMEs is significant. The findings also
showed that financial literacy moderates the
relationship between access to finance and
performance of SMMEs.
The study makes an empirical contribution to
the literature on financial literacy, access to
finance and performance of SMMEs. The
findings of the study showed that to improve
access to debt and performance of SMMEs,
the financial literacy of the business owner is
important. Empirically, the body adds to the
body of literature on the relationship between
financial literacy and access to debt and
performance of SMMEs in developing
countries. The study has some practical
implications and the findings can assist
SMME owners and government to better
comprehend how to promote financial literacy.
Owners have to be proactive and attend
courses on financial management and literacy.
Many universities in South Africa have short
courses in their curriculum that can assist
SMMEs with financial management skills.
SMME owners can also partner with banks,
accountants and bookkeepers to help them
learn how to use financial management
software. SMMEs can also partner with
governmental and non-governmental
organisations that support entrepreneurship for
training on financial literacy. The study has
some limitations. The non-probability
sampling method was used and the data
collected may be biased and represent only the
opinions of the respondents of the study.
Therefore, care should be applied in
generalising the findings of the study. The
cross-sectional survey approach used by the
study cannot be used to analyse behaviour
over a period of time and limits the ability to
determine cause and effect. Other studies can
explore the effect of demographic variables of
SMME owners on financial literacy. A
longitudinal study focusing on the same
concepts will help to improve cause and effect
relationship.
WSEAS TRANSACTIONS on BUSINESS and ECONOMICS
DOI: 10.37394/23207.2021.18.9
Olawale Fatoki
E-ISSN: 2224-2899
85
Volume 18, 2021
References
[1] Organisation for Economic Co-operation
and Development, 2017. Enhancing the
contributions of SMEs in a global and
digitalised economy. Online:
https://www.oecd.org/industry/C-MIN-2017-
8-EN.pdf. (Accessed 20 June 2019)
[2] World Bank 2018. Unlocking the Potential
of SMEs with an Innovative, Risk-Sharing
Financing Solution.
https://www.worldbank.org/en/news/feature/2
018/09/20/unlocking-the-potential-of-smes-
with-an-innovative-risk-sharing-financing-
solution (Accessed 20 June 2019)
[3] Agyei, SK. Culture, financial literacy, and
SME performance in Ghana. Cogent
Economics & Finance, Vol. 6, No. 1, 2018,
pp. 1-16.
[4] Small Business Institute, 2018. The
number of formal micros, small & medium
businesses in South Africa.
https://www.smallbusinessinstitute.co.za/wp-
content/uploads/2018/10/SBIbaselineAlert1fin
al.pdf (Accessed 20 June 2019)
[5] Small Enterprise Development Agency,
2018. SMME Quarterly Update 1st Quarter
2018.
http://www.seda.org.za/Publications/Publicatio
ns/SMME%20Quarterly%202018-Q1.pdf
(Accessed 20 June 2019)
[6] Mabula, JB., Ping, HD. Use of Technology
and SME Managers' Financial Literacy in
Developing Economies. ICEBT 2018:
Proceedings of the 2nd International
Conference on E-Education, E-Business and
E-Technology. July 2018 ,pp. 145152.
[7] Rupeika-Apogaa, R., Danovi, A.
Availability of Alternative Financial
Resources for SMEs as a Critical Part of the
Entrepreneurial Eco-System: Latvia and Italy.
7th International Conference, The Economies
of Balkan and Eastern Europe Countries in the
changed world, EBEEC 2015, 2015, May 8-
10,
[8] Nunoo, J., Andoh, F.K. Sustaining small
and medium enterprises through financial
services utilization: Does financial literacy
matter? A paper presented at the Agricultural
& Applied Economics Association’s 2012
AAEA Annual Meeting, Seattle, Washington,
1214
[9] Huston, SJ. Measuring Financial Literacy.
Journal of Consumer Affairs. Vol. 44, No. 2,
2010, pp.296-316.
[10] Fatoki, O. The Financial Literacy of
Micro Entrepreneurs in South Africa. Journal
of Social Science, Vol. 40, No 2, 2014, pp.
151-158.
[11] Bongomin, G., Ntayi, J., Munene, J.,
Akol, C. The relationship between access to
finance and growth of SMEs in developing
economies: Financial literacy as a moderator.
Review of International Business. Strategy,
Vol.27, 2017. pp. 520538.
[12] Adomako, S., Danso, A., Damoah, JO.
The moderating influence of financial literacy
on the relationship between access to finance
and firm growth in Ghana, Venture Capital,
Vol. 18, No. 1, 2015, pp. 43-61
[13] Hussain, J., Salia, S., Karim, A. Is
knowledge that powerful? Financial literacy
and access to finance: An analysis of
enterprises in the UK. Journal of. Small
Business and. Enterprise. Development, Vol.
25, 2018, pp. 9851003
[14] Kulathunga, K., Ye, J. How Does
Financial Literacy Promote Sustainability in
SMEs? A Developing Country Perspective,
Sustainability, Vol. 11, pp. 2019, 2990.
[15] Government Gazette, 2019. Revised
Schedule 1 of the National Definition of Small
Enterprise in South Africa
https://www.gov.za/sites/default/files/gcis_doc
ument/201903/423041gon399.pdf (accessed
on 25 April 2019).
[16] Giang, M, Trung, B., Yoshida, Y., Xuan,
T., Que, M. The Causal Eect of Access to
Finance on Productivity of Small and Medium
Enterprises in Vietnam. Sustainability. Vol.
11, 2019, pp.5451-5462.
[17] FinMark Trust 2017. Small business
performance: Does access to finance matter?
http://www.finmark.org.za/wp-
content/uploads/2017/05/policy-paper-msme-
access-to-finance.pdf (accessed on 25 April
2019).
WSEAS TRANSACTIONS on BUSINESS and ECONOMICS
DOI: 10.37394/23207.2021.18.9
Olawale Fatoki
E-ISSN: 2224-2899
86
Volume 18, 2021
[18] Shava, H. Impact of gender on small and
medium-sized entities’ access to venture
capital in South Africa. South African Journal
of Economics and Management Sciences, Vol.
21, No. 1, 2018, pp. 1738-1750.
[19] Blumberg, BF., Letterie, WA. Business
Starters and Credit Rationing. Small Business
Economics, Vol. 30, No. 2, 2008, pp. 187-200.
[20] Osano, H., Languitone, H. Factors
influencing access to finance by SMEs in
Mozambique: case of SMEs in Maputo central
business district. Journal of Innovation and
Entrepreneurship, Vol. 5, No. 13, 2016, pp. 1-
10.
[21] Sibanda, K, Hove Sibanda, P and Shava,
H. The impact of SME access to finance and
performance on exporting behaviour at firm
level: A case of furniture manufacturing SMEs
in Zimbabwe. Acta Commercii, Vol. 18, No 1,
2018, pp. 1-13.
[22] Tsoukatos, E. Lemonakis, C &
Garefalakis, A. Access to finance and
performance of SMEs manufacturing firms:
Evidence from EU, Scandinavian and Balkan
countries. September 2015. 8th Annual
Euromed Academy of Business Conference
[23] Kotzè, L., Smit, A. Personal financial
literacy and personal debt management: The
potential relationships with new venture
creation. South. African. Journal of
Entrepreneurship and Small Business
Management, Vol. 1, 2018, pp. 3550.
[24] Wise, S. The impact of financial literacy
on new venture survival. International.
Journal of Business Management, Vol. 8,
2013, pp. 30-39.
[25] Organisation for Economic Co-operation
and Development, 2018. Financing SMEs and
Entrepreneurs.
https://www.oecd.org/cfe/smes/Highlights-
Financing-SMEs-and-Entrepreneurs-2018.pdf
(accessed on 13 July 2019).
[26] Agyapong, D., Attram, AB. Effect on
owner-manager’s financial literacy on the
performance of SMEs in the Cape Coast
Metropolis in Ghana. Journal of Global
Entrepreneurship Research, Vol. 9, No. 67,
2019, pp. 1-13.
[27] Barney, J. Firm resources and sustained
competitive advantage. Journal of
Management, 17, 1991, 99120
[28] Eniola, AA., Ektebang, H. SME firms
performance in Nigeria: Competitive
advantage and its impact. International
Journal of Research Studies in Management,
Vol.3, 2014, pp. 7578
[29] Abdulsaleh, AM., Worthington, A. Small
and Medium-Sized Enterprises Financing: A
Review of Literature. International Journal of
Business and Management, Vol. 8, No.14,
2013, pp. 36-54
[30] Nunnally, J.C., Bernstein, I.H.,
Psychometric Theory. McGraw-Hill, New
York. 1994.
[31] FinMark Trust 2015. Financial Access
and SME Size in South Africa.
http://www.finmark.org.za/wp-
content/uploads/2016/01/Rep_Financial-
Access-and-SME-Size-in-SA_Dec2015-1.pdf
(accessed on 15 July 2019).
[32] Banking Association of South Africa/
SME Financial literacy in South Africa.
https://www.banking.org.za/what-we-do/sme/
(accessed on 13 July 2019).
[33] European Central Bank 2009. Survey on
the access to finance of SMEs,
https://www.ecb.europa.eu/stats/accesstofinan
cesofenterprises/pdf/questionnaire/ecb.safeq20
09H1.en.pdf (accessed on 11 July 2019).
[34] Farrington, SM, Psychological
wellbeing and perceived financial
performance: An SME perspective. South
African Journal of Business Management,
Vol. 48, No.4, 2017, pp. 47-56.
[35] Baron RM., Kenny DA. The moderator
mediator variable distinction in social
psychological research: Conceptual, strategic,
and statistical considerations. Journal of
Personality and Social Psychology, Vol.51,
1986, pp. 11731182.
[36] James LR & Brett JM. Mediators,
moderators and tests for mediation. Journal of
Applied Psychology, Vol. 69, 1984, pp. 307
321.
[37] Judd CM & Kenny DA. Process analysis:
Estimating mediation in treatment evaluations.
Evaluation Review, Vol.5, 1981, pp.602619.
Creative Commons Attribution License 4.0
(Attribution 4.0 International, CC BY 4.0)
This article is published under the terms of the Creative
Commons Attribution License 4.0
https://creativecommons.org/licenses/by/4.0/deed.en_US
WSEAS TRANSACTIONS on BUSINESS and ECONOMICS
DOI: 10.37394/23207.2021.18.9
Olawale Fatoki
E-ISSN: 2224-2899
87
Volume 18, 2021
... The definition of a successful business can vary based on region and individual goals, whether it's industry leadership or achieving a desired lifestyle, in South Africa, it refers to those that have survived beyond breakeven point, innovate, adapt to changing market conditions, and embrace new technologies, establish a strong market presence, gain customer trust, and differentiate themselves from competitors, contributed significantly to job creation and social impact (Maduku & Kaseeram, 2021;Musara & Nieuwenhuizen, 2021;Esau & Tengeh, 2022). Research observed that successful enterprises contribute to over 50% of South Africa's total employment, make up 60% of total exports and contribute about 90% of total export earnings, as well as account for approximately 50% of the total workforce in manufacturing industries (Fatoki, 2021;Mashavira, Chipunza & Dzansi, 2021). This evidence translates that, an understanding of the underlying ecosystem factors that influence entrepreneurs and entrepreneurship growth in South African would potentially contribute significantly to its economic stability, especially with regards to employment. ...
... Consequently, the South African government's commitment and increased SMME support heightened over the years (South Africa Department of Trade and Industry (SA DTI), 2013; SA Economic Development Department, 2014; South African Government, 2021), however, enterprise performance in the country over the last ten years is not in tandem with expected success threshold (OECD, 2020). Compared with a global average of 20%, an average of 70% SMME failure rate is being recorded in the country (Masama, 2018;Fatoki, 2021Madzimure & Tau, 2021, with assumptions that South African black-owned SMMEs leads on the list (Charman et al., 2012;Nkondo, 2017). Preliminary findings obtained earlier point to entrepreneurial orientation and business patterns (Nkondo, 2017), the nature and typology of support initiatives (Fatoki & Chindoga, 2011;Netshandama et al., 2021), limited entrepreneurship research conducted to crystalise critical entrepreneurial ecosystems, as well as cash flow and access to formal credit (Masama, 2018;Madzimure & Tau, 2021). ...
... At present, there is no evidence of a national database or list of SMMEs in Limpopo, making it difficult to directly estimate the actual sample size. Therefore, the proxy for the actual sample size of the study was based on research about entrepreneurship conducted earlier in the country (Farrington & Matchaba-Hove, 2011;Fatoki, 2021;Kativhu, Iwara & Mwale, 2021). Participants were randomly selected for the data collection while Cronbach's alpha was used as a measure of reliability. ...
Article
Full-text available
This paper investigates constructs fundamental to enterprise efficacy in Limpopo Province. Following the purposive sampling technique, 724 entrepreneurs operating Small, Micro, and Medium-scale enterprises (SMMEs) in selected rural areas of the province were sampled. Data collection was performed one-on-one using a structured questionnaire whose constructs were derived from an existing entrepreneurship prototype in Vhembe District. The analysis modelled on Multilayer Perceptron through IBM SPSS v27 suggests endogenous entrepreneurial capacity building in bridging networks, resilience, risk awareness, self-efficacy, and nonconformist factors. These were perceived as being lacking amongst the entrepreneurs and critical to enterprise efficacy in the area. Although exogenous construct tends to be less critical compared to endogenous, it poses a challenge to local enterprises. The factors include access to the market, enterprise financing, stiff competition, operational costs, lack of physical capacity, and sociocultural issues. Local infrastructure concerns and entrepreneurial capacity building need solutions at a local level to facilitate targeted support on the two identified constructs affecting SMMEs’ efficacy in rural areas. The study's emphasis on local-level solutions for addressing infrastructure concerns and enhancing entrepreneurial capacity building adds practical value. By highlighting the need for targeted support at the local level, it provides actionable insights for policymakers, local authorities, and organizations aiming to foster SMME efficacy in rural areas.
... Eniola and Entebang (2017) Further, many studies consider accounting knowledge, understanding of ratios, financial statement analysis knowledge, and ability to measure FL. Adomako et al. (2016) and Fatoki (2021) use four questions related to the preparation/review/performing financial analysis of monthly financial statements, and understanding of the gross profit ratio and its contribution to the enterprise's overall profit. Widagdo and Sa'diyah (2023) include the aspect of knowledge in preparing monthly income reports, attending bookkeeping training, and awareness of files required to get a bank loan in measuring FL. ...
... The first and most common variable associated with FL is PERF and is measured in terms of general business performance (Eniola & Entebang, (2017;Kulathunga et al., (2020;Ngek, (2016;Wahyono & Hutahayan, (2021;Purnomo, (2019); Iramani et al., 2018 (Li and Qian (2020) (Ying et al., 2019;Idris et al., (2023;Nurjannah et al., (2023;Widagdo & Sa'diyah, (2023;Budiarto et al., (2023), growth (Hussain et al., 2018;Bongomin et al., (2017;Hossain et al., (2020;Owusu et al., (2019);Diéguez-Soto (2022Resmi et al. (2019aSharma, (2022), financial performance (Sohilauw et al., 2020;Khan et al., (2022);Nuryakin et al., (2021); Menne et al. (2023); Wiagustini et al. (2023); Dura (2022); Irman et al.,(2021); Dwiputri et al. (2023), Financial and non-financial growth (Hossain, 2020, Financial and non-financial performance (Tuffour et al., 2022, sustainable business model (Luo & Cheng (2023) etc. The second most common factor associated with FL is AF (Ye & Kulathunga, (2019;Hussain et al., (2018;Bongomin et al., (2017;Mabula & Ping, 2018a); Buchdadi et al., (2020;Fatoki, (2021;Widyastuti et al., (2023;Sharma, (2022;Changwesha & Mutezo, (2023). Studies have measured AF, access to credit, and access to digital finance. ...
Article
Full-text available
Although there has been an increase in publications in the field of financial literacy in recent years, the articles related to financial literacy in connection to MSMEs/SMEs are limited. Hence, the purpose of this article is to analyze the trend in publication (for long-term, medium-term, and short-term) and literature review of key empirical studies to understand the definition, dimensions, and common variables that are influenced by financial literacy of MSME/SME owner/manager/CFO, etc. The descriptive bibliometric analysis reveals that overall business, management, and accounting is the leading subject area (in all three timelines) in which the articles are published, and the focus seems to be shifting to economics, econometrics, and finance in the short term with increase in percentage contribution in top 3 subject area list. The findings of our literature review reveal four aspects i.e., (i) The common dimensions of financial literacy were knowledge, awareness, and skill; (ii) There is no standardized scale for measuring the financial literacy of owner-managers of MSMEs; and (iii) Financial literacy is a common and significant antecedent to access to finance and enterprise performance. Financial literacy and access to finance are the challenges faced by MSMEs, these findings are of significance to both MSMEs and policymakers. Training and development programs to create awareness on policies related to MSMEs, sources of finance, and knowledge on basic financial aspects will not only improve the access to finance but also will improve the financial health and performance of MSMEs which are backbone of many developing economies. Further, academicians/researchers can work can developing a suitable scale measuring FL of owner-managers of MSMEs.
... The low level of financial literacy among business actors is an obstacle for MSMEs to develop (Fatoki, 2021); (Aritonang et al., 2023). MSME players face various problems related to low financial literacy, including: financial difficulties and making wise financial decisions ( (Harianti et al., 2021); (Meitriana et al., 2022)), financial management (Susan, 2020), capital problems (Aritonang et al., 2023, long-term planning (Bancoro, 2023), business sustainability (Ferli, 2023), funding limitations ( (Ferli, 2023); (Suwarsi et al., 2022); (Meitriana et al., 2022); (Astari & Candraningrat, 2022); (Sisharini et al., 2019); (Hirawati et al., 2021)) thus hampering the development of MSMEs (Sisharini et al., 2019). ...
... Access to finance and financial literacy have a positive relationship. Access to finance and the performance of MSMEs are moderated by financial literacy and have a positive relationship (Fatoki, 2021). Increasing the level of financial literacy has a positive relationship with SME innovation performance, through increased risk taking (Campos Valenzuela et al., 2021). ...
Article
Full-text available
This research aims to examine various articles regarding the influence of financial literacy on the performance of MSMEs. The literature used in this research comes from indexed journal databases searching for the keywords "financial literacy" and "performance". This research found various factors involved in measuring the influence of financial literacy on MSME performance consists of: dimensions of financial literacy, namely: knowledge, attitudes and behavior; factors that influence financial literacy are age, gender, education, length of work and income; strategies to increase financial literacy through training; MSME performance are: financial and non-financial performance. The impact of financial literacy on MSME performance is influenced by many factors. This research provides input for policy makers to increase the level of financial literacy of MSME business actors so that MSME performance becomes better, competitive and has a competitive advantage.
... Similarly, Budiasa et al. highlight that poor financial knowledge leads to suboptimal business conditions, underscoring the importance of financial literacy for effective financial management (Budiasa et al., 2022) [21] . Furthermore, Fatoki's study reveals that financial literacy positively influences access to finance, which in turn enhances the performance of small businesses (Fatoki, 2021) [37] . This relationship suggests that a lack of financial literacy can create barriers to obtaining necessary funding, thereby limiting growth opportunities for SMEs. ...
Article
Small and Medium-sized Enterprises (SMEs) are pivotal to Nigeria’s economic development, contributing significantly to employment generation and Gross Domestic Product (GDP). However, their growth is constrained by limited access to financial resources, poor credit facilities, and inadequate support from financial institutions. This paper presents a conceptual framework for expanding SME portfolios in Nigeria’s banking sector through innovative financial solutions. The framework integrates advanced technologies, strategic financial modeling, and collaborative partnerships to address the challenges SMEs face in accessing credit and financial services. Key elements of the framework include the implementation of data-driven credit scoring systems using machine learning algorithms to assess SME creditworthiness beyond traditional metrics, such as collateral and financial history. Additionally, digital banking platforms are proposed to streamline loan application processes, reduce operational costs, and enhance service delivery. The framework emphasizes the creation of SME-focused financial products, such as micro-loans, credit guarantees, and revenue-based financing, tailored to the unique needs of various SME segments. Partnerships between banks, fintech firms, and government agencies are highlighted as essential for fostering an inclusive financial ecosystem. A critical component of the framework is financial literacy and advisory services, aimed at equipping SME owners with the knowledge and skills needed to manage finances effectively and optimize business performance. The model also incorporates monitoring and evaluation systems to track portfolio performance and mitigate risks, ensuring sustainability and profitability for both financial institutions and SMEs. This paper provides a roadmap for policymakers, financial institutions, and development organizations to support SME growth through innovative financial solutions. By leveraging advanced technologies, collaborative frameworks, and SME-specific financial products, the proposed conceptual framework aims to bridge the financing gap, stimulate SME growth, and contribute to Nigeria’s economic diversification and development.
... As a result, there are limitations in determining the actual sample size statistically. Against this shortfall, the study's approximation for the actual sample size relied on prior entrepreneurship-related explanatory research conducted in the country (Farrington & Matchaba-Hove, 2011;Fatoki, 2021;Kativhu et al., 2021), and on Cronbach's alpha assumption of sample reliability. Through purposive and snowball sampling techniques, a total of 700 local entrepreneurs with at least three experiences of operating SMMEs in Polokwane, Sheshego, Tzaneen, Bungeni, Malamulele, Thohoyandou, and Tswinga areas of the province, were sampled. ...
Article
Full-text available
The persistently high attrition rates of small, medium, and micro enterprises in most economies globally hinges significantly on challenges stemming from lack of business dynamism and intense competition. This study explores the entrepreneurial proficiency of entrepreneurs in value proposition skills, a pivotal resource in mitigating homogeneity-related business failures. Using the KAP framework, variables within knowledge (awareness, comprehension and competence), attitudes (perception, intention and consistency) and practices (target audience, differential offerings, customer value) were scrutinised across cohorts (gender, location, and support status). Through a non-parametric analysis on a data structure obtained from conducting a 5-Likert type scale survey with 648 entrepreneurs, the findings explains that while awareness of the value proposition is notably high across respondents, supported entrepreneurs outshine their unsupported counterparts. Comprehension and competence, however, exhibit comparatively lower values, particularly among unsupported entrepreneurs, and despite a positive perception, the intention and consistency levels regarding the value proposition concept are sub-par across all groups. In terms of practice, factors such as target audience and differential offerings are below average, emphasizing the need for strategic and pragmatic interventions. The result indicates an overall deficiency in value proposition proficiency, stressing targeted soft and hard entrepreneurial skills interventions to foster not only value proposition acumen but market positioning, entrepreneurial resilience, and enterprises efficacy in the competitive business landscape.
Article
Full-text available
Purpose The current study examines the relationship between financial literacy and small and the performance of medium enterprises (SMEs), focusing on the moderating role of financial access. Design/methodology/approach The population of this study consists of present SMEs in Kuwait, from whom a sample of 155 businesses was chosen. This study adopted a cross-sectional time frame and analyzed the collected data using partial least square structural equation modeling, and Smart-pls 4 software was applied for calculation. Findings This research reveals that financial literacy significantly influences SME performance, consistent with previous studies, showing that higher financial literacy promotes entrepreneurs' financial management capabilities and enhances business outcomes. Also, the study supports that financial access significantly moderates this relationship, pointing out that adequate access to financial services boosts the benefits of financial literacy. Research limitations/implications Major implications of this study compromise the urgent need for customized financial literacy programs and policies promoting financial thoroughness, particularly in enhancing economies. The study recognizes limitations such as its cross-sectional design, small sample size and reliance on self-reported measures, suggesting further research use longitudinal approaches, a larger sample and objective measures. Practical implications The authors’ recommendations contain comprehensive financial literacy training, development of targeted financial education initiatives, promotion of sound financial management practices and policies to enhance financial access and inclusion, all aimed at boosting SME performance and contributing to economic growth. Originality/value To the best of the authors’ knowledge, this study is Kuwait’s first of its sort. Thus, the research is even more critical in Kuwait, where social and corporate values differ significantly. Therefore, this study aimed to investigate the relationship between financial literacy and the performance of Kuwait’s SMEs moderated by financial access.
Article
Full-text available
Decision-making in the complex equity market is a demanding task due to the vast amount of information available and the wide range of decision-making techniques to choose from. The financial literacy of the investors plays a prominent role in influencing their decision-making process. Though the Indian equity market is the third largest in Asia, only around 3% of Indian households invest in it. Therefore, the financial literacy level of Indian investor needs to be assessed to increase the stock market participation and earn higher returns. This study aims to determine the moderating effect of financial literacy on the relationship between the decision-making tools and equity returns in the Indian secondary equity market. The decision-making tools include fundamental analysis: (i) Economic analysis, (ii) industry analysis, (iii) company analysis, (iv) technical analysis, and (v) advocate recommendation. The data was gathered through a questionnaire survey method and via a valid sample of 436 questionnaires, the significance of the moderating effect was tested. Using the Process Macro plugin in SPSS, moderation analysis was conducted. The results reveal that financial literacy only moderated the relationship between economic analysis and equity returns. JEL Classification: G10, G11, I22
Article
Full-text available
This study aims to uncover the interaction of intangible resources in personal branding, corporate branding, and open innovation in shaping the competitive advantage and sustainability of culinary SMEs in developing countries. Financial moderation is a moderation variable in the relationship between competitive advantage and business continuity. Using a quantitative approach involving 216 respondents, this study with SEM PLS analysis has produced empirical information that knowledge and branding resources (personal and corporate) have convincingly influenced the formation of competitive advantage and business continuity. This study reinforces resource-based theory and practically becomes a strategic consideration for stakeholders related to culinary SMEs in maintaining their existence in a competitive dynamic.
Article
Full-text available
Financial literacy enables owner-managers of SMEs to understand and assess their own financial needs and make rational financial decisions. The paper explores the financial literacy of owner-managers of SMEs in the Cape Coast Metropolis and how such literacy influences the performance of their businesses. The study population were owner-managers of registered SMEs in the Cape Coast Metropolis from the National Board for Small and Medium Enterprise, out of which a sample of 132 was selected through the simple random sampling technique. The data was analyzed using Structural Equation Model. The results showed a positive relationship between financial literacy and the firm’s financial performance (t = 35.631, p < .00). The paper recommends that policy makers should specifically design a program and platform targeted at further enhancing the financial literacy level of these owner-managers to help improve the performance of their firms.
Article
Full-text available
In many developing countries, obtaining financial services at affordable rates and fair terms has been a significant challenge for small and medium enterprises (SMEs). However, this issue has not been paid much attention in Vietnam, even though SMEs account for about 95% of total enterprises and the financial market of the country has not been well developed. This study investigates the causal effects of access to finance on productivity of SMEs operating in the manufacturing sector in Vietnam. Productivity was measured as the total factor productivity (TFP) obtained by production function estimation using the Levinsohn and Petrin approach. Regarding financial accessibility, two factors covered the extent to which firms might have a bank loan or overdraft facility were employed. To study the causal inferences of access to finance on firm productivity, the research adopted the difference-in-differences (DID) approach, as well as the propensity score matching (PSM) coupled with DID technique. The empirical results indicated that improving the financial accessibility could directly enhance firm productivity. Particularly, it was shown that firms having access to a bank loan could significantly improve TFP by approximately 8.6% in the DID model and about 9% in the PSM-DID model. Meanwhile, the firm average TFP increased by approximately 12.3% and 15.7% in simple DID and PSM-DID models, respectively, when firms had an overdraft facility. These findings suggest that the government should put more effort into assisting SMEs in generating bankable projects, and create a sound and healthy financial environment to stimulate firms’ access to finance, which will ensure their sustainability and growth.
Article
Full-text available
Role of the knowledge-based resources in promoting sustainability in small and medium enterprises (SMEs) is currently a topic of debate. Financial literacy has been identified as a vital knowledge resource for financial decision making, but insufficient attention has been given to how SMEs’ financial literacy affects their sustainability. Drawing upon a knowledge-based perspective, peaking order theory and dual process theory, we constructed an integrated model to examine the impact of financial literacy, access to finance and financial risk attitude on SMEs’ sustainability. The sample included 291 chief financial officers (CFOs) of SMEs in Sri Lanka. The output of structural equation modelling revealed direct positive effects of financial literacy, access to finance and financial risk attitude on sustainability. Financial literacy also emerged as a predictor of access to finance and financial risk attitude. Moreover, access to finance and financial risk attitude were found to be partial mediators of the relationship between financial literacy and SMEs’ sustainability. Theoretical implications and practical implications for policymakers, industry practitioners and academics interested in promoting sustainability amongst SMEs are discussed.
Article
Full-text available
Orientation: Globally, the majority of Small and Medium-sized entities (SMEs) are resource constrained. As a result, not all SMEs are able to fully exploit the benefits associated with international trade as they face challenges when exporting their produce. Research purpose: This article presents an investigation into the impact of access to finance on firm performance and exporting behaviour of SMEs in Harare, Zimbabwe. Motivation for the study: The article stems from the observation that although there is a growing importance and contribution of SMEs worldwide, research has shown that only a few of these SMEs are involved in international trade. Research design, approach and method: A cross-sectional study was employed with quantitative methods being utilised. The collected data were analysed using a structural equation modelling technique, which employed the Smart partial least squares software (version 2.0). Main findings: The key findings reveal that a significant positive relationship between access to finance and SMEs exporting behaviour does exist. Furthermore, the study’s findings challenge the notion that firm performance has a significant impact on exporting behaviour and show a negative impact of access to finance on SME firm performance. Practical/managerial implications: There is a need to put systems in place in Zimbabwe that that will (1) prioritise the need to have clear routes to market and increase awareness among SME owners, and (2) help SMEs overcome high costs associated with participating in export of goods and services. Contribution/value-add: The article provides a unique empirical analysis of the relationship that exists between access to finance, firm performance and export behaviour of SME firms in Zimbabwe, and thereby makes a valid contribution to SME literature.
Article
Full-text available
Background: The debate on the influence of gender on small and medium-sized entities’ (SMEs) access to finance from a demand-side perspective is still ongoing. This study seeks to contribute to the debate from an emerging economy (South Africa) perspective. Aim: The study investigated whether there is a gender gap in SME access to venture capital, a distinct source of finance. Setting: SMEs play a significant role in South Africa’s economy. Despite the importance of SMEs, access to finance is one of the major constraints affecting their success rate. Globally, to enhance the probability of SME survival, small business practitioners and governments are in search of relevant support measures. One of those measures could be adequate access to venture capital. However, it is sad to note that SMEs seldom use this distinct source of finance. Methods: The study made use of the quantitative method of research and is descriptive by design. Self-administered questionnaires were emailed to respondents for the purposes of gathering primary data. The t-test was used to statistically analyse primary data. Results: The results reveal that there is a statistically significant difference in the accessibility of venture capital between male- and female-owned SMEs. Conclusion: The article concludes that a gender gap in access to venture capital exists owing to differences in business approach between female entrepreneurs and their male counterparts. Female entrepreneurs are cautious about the level of risk they are willing to take and the amount of control they wish to exercise in firm ownership.
Article
Full-text available
This study extends the literature on financial literacy and cultural (Catholicism or Protestantism) beliefs to SME performance in a developing economy setting. Two basic questions motivated the study: (1) does culture influence financial literacy?; and (2) does culture mediate the relationship between financial literacy and firm performance in Ghana? The results, from 300 randomly sampled SME-Owners and based on Ordinary Least Squares and Logit regressions, suggest that cultural values militate against financial knowledge acquisition. Furthermore, Protestant beliefs strengthen the probability that SMEs would take advantage of growth opportunities due to financial literacy. Thus, the study concludes that the relationship between financial literacy and SME growth is cultural-context dependent. The study recommends that (1) religious bodies should inculcate financial education in their teachings; (2) financial literacy training programmes for SME-Owners should be tailored to meet their needs; and (3) cultural beliefs of SME-Owners should be of prime consideration in designing financial literacy programmes.
Article
Full-text available
Psychological well-being is influenced by the "surrounding contexts of people's lives" and has consistently been found to be associated with positive outcomes. Given the turbulent surrounding contexts facing SME owners in South Africa, the primary objective of this study was to investigate their level of psychological well-being and to establish the influence thereof on the financial performance of their businesses. A survey using a structured questionnaire was used to gather the necessary data. The population consisted of all owners of SMEs operating within the borders of the Eastern Cape province of South Africa. Criterion and convenience sampling were used and questionnaires were administered by field workers. In total 495 questionnaires were useable for statistical analysis. Scale validity and reliability was assessed, descriptive statistics calculated and Pearson's product moment correlations established. Multiple regression analysis was undertaken to investigate the hypothesised relationships. The results show that the participating SME owners have high levels of positive psychological well-being and that their businesses are performing financially. The results also suggest that the more SME owners display the attributes associated with environmental mastery, self-acceptance and autonomy, the more likely their SMEs are to perform financially.
Article
Purpose The purpose of this paper is to examine the relationship between financial literacy, access to finance and growth among small- and medium-sized enterprises (SMEs) within the Midlands region of the UK. It assesses whether financial literacy assists SMEs to overcome information asymmetry, mitigates the need for collateral, optimizes capital structure and improves access to finance. Design/methodology/approach To gain a deeper insight into the complex relationship between financial literacy, access to finance and growth, a qualitative research is carried out among SMEs that have operated for over five years or longer. Using the purposive sampling technique, 37 firms were selected based on size, location and characteristics, mainly from the city of Birmingham and the joining conurbations. Open-ended and a combination of dichotomous questions were used for the survey. Interviews were recorded, transcribed and thematically analyzed. Findings Financial literacy is an interconnecting resource that mitigates information asymmetry and collateral deficit when evaluating loan applications, therefore financial literacy should be part of school curriculum. The analysis suggests enhanced financial literacy, reduces monitoring cost and serves to optimize firms’ capital structure that positively impacts on SMEs growth. Financial management knowledge is recognized as the core resource that aids an effective decision making by owners of SMEs. Research limitations/implications The limitation of this research is the small sample that limits its generalization. Its findings could be enhanced by a larger sample and by conducting comparative studies in other regions or economies. SMEs growth is seen as a strategic policy to stimulate enterprise but the finance gap tends to constrain that objective. The UK Government’s effort to improve access to finance and to mitigate excessive collateral demands by lenders has proved elusive. This empirical research provides evidence that financial literacy enhances access to finance and, in turn, promotes growth potentials. Practical implications The results of this study advocate the provision of financial literacy at schools and target support for SMEs to acquire financial management skills in order to mitigate information asymmetry between lenders and borrowers. Social implications Findings suggest that financial literacy mediates access to finance, enables enterprises to use optimal financial structure to mitigate business failure, creates employment and reduces public sector support for social benefits. Originality/value This study is novel in that it examines financial literacy and its implications for access to finance and firm growth in the UK. The study is an effort to highlight the role of financial information in mitigating barriers to finance for SMEs.
Article
The research investigated the level of financial literacy of the owners of new micro-enterprises in South Africa. This study used financial planning, analysis and control, book-keeping, understanding of funding sources, business terminology, finance and information skills, use of technology and risk-management to measure the financial literacy of entrepreneurs. Data was gathered through the use self-administered questionnaire in a survey. A combination of dichotomous and Likert scale questions were used for the survey. Descriptive statistics was used for data analysis. The results suggest a low level of financial literacy by the owners of new micro-enterprises. Recommendations to improve financial literacy are suggested.
Article
Purpose The main purpose of this paper is to establish the moderating effect of financial literacy in the relationship between access to finance and growth of SMEs in developing economies. Thus, this study seeks to establish whether financial literacy moderates the relationship between access to finance and growth of SMEs in a developing economy like Uganda. Design/methodology/approach Cross sectional research design was employed in the study and data were collected from 169 SMEs located in Jinja and Iganga central markets. ModGraph (Excel programme) was used to test for the moderating effect of financial literacy in the relationship between access to finance and growth of SMEs in developing economies. Findings The findings reveal a positive and significant moderating effect of financial literacy in the relationship between access to finance and growth of SMEs in developing economies. In addition, financial literacy and access to finance also have significant and positive effects on growth of SMEs in developing economies. Research limitations/implications The study collected data from only SMEs located in Uganda, and there is an opportunity to test this finding in other developing economies. Furthermore, the findings from the study are based on quantitative data collected through use of semi-structured questionnaires. Besides, the study was purely cross-sectional hence, ignoring the characteristics of SMEs, which could be investigated using longitudinal study design. Practical implications The study highlight the importance of financial literacy in promoting access to finance, which is necessary for growth of SMEs in developing economies. Owners of SMEs could attend financial literacy programs provided by entrepreneurial skill development organizations to enable them to acquire financial knowledge and skills so as to make wise and better financial decisions and choices. Originality/value The study contributes to existing international entrepreneurship literature by indicating the moderating effect of financial literacy in the relationship between access to finance and growth of SMEs in developing economies. The study shows that for SMEs to access finance in order to grow there is need for financial literacy that promotes effective and efficient use of loans/credits. SMEs in developing economies need financial literacy, which helps them to make wise financial decisions and choices before accessing financial services like loans.