Does Financial Literacy Improve SME Owners' Financial Inclusion and Decision-Making, Leading to Better Performance Outcomes?
DOI:
https://doi.org/10.61799/2216-0388.1886Keywords:
Employment generation, Financial inclusion, Financial literacy, Small-scale enterprises.Abstract
Small-scale enterprises (SSEs) play an important role in employment generation, poverty alleviation and economic growth. SSEs’ success is often limited by financial knowledge, inadequate decision-making practices, and restricted access to formal financial services. Financial literacy has been identified as an important factor that can enhance business performance and inclusion in financial systems. This study investigates the role of financial literacy in improving financial inclusion and business performance among SME owners, focusing on the interaction between financial literacy, owners’ decision-making, and access to finance. A correlational research design was adopted on cross-sectional data from 137 countries, excluding 21 countries due to unavailable data. Financial literacy was proxied by knowledge of loan qualification procedures and understanding of the financial systems, while owners’ decision-making was measured using the World Bank Management Practice Index. Better performance outcome (BPO) was assessed through the achievability of production targets. The study used the Least Squares regression to examine relationships among financial literacy (FL), owners’ decision-making (ODM), financial inclusion (FIN), and how they interact with BPO, controlling for heteroskedasticity and multicollinearity.The analysis indicates that financial literacy (0.855) and owners’ decision-making (0.68) significantly and positively influence BPO. Financial inclusion alone does not have a significant effect. Notably, the interaction between financial literacy and decision-making (0.07) significantly enhances performance outcomes, and the interaction of financial literacy with financial inclusion (0.002) also positively affects BPO. Financial literacy and structured decision-making are critical drivers of SME performance, while access to financial services alone is insufficient. Synergistic effects between financial literacy and both decision-making and financial inclusion substantially enhance business outcomes, highlighting the need for policies and programs that strengthen financial education and managerial capabilities among SME owners.
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