Financial Literacy, Access to Digital Finance and Performance of Ugandan SMEs in Mbarara City
Keywords:
Financial literacy, access to digital finance and performance of Ugandan SMEs, Mbarara City
Abstract
This study investigates the relationship between financial literacy and access to digital finance, and how these impact the performance of small and medium-sized enterprises (SMEs) in Uganda. From a population of 4,776 SMEs in Mbarara City, the research uses a sample of 351 SMEs with a response rate of 99%, chosen based on the Krejcie and Morgan (1970) tables. To investigate the correlations between the variables, a cross-sectional design is used. The findings indicate a positive and significant relationship between financial literacy, access to digital finance and SME performance in Uganda. The regression analysis indicates that 45.7% of the variation in Ugandan SME performance can be explained by the combination of the effect of financial literacy and access to digital finance (adjusted R square = 0.457). This implies that the remaining 54.3% of the variation in SME performance was not taken into account in this study and is due to other factors. Given the significant amount of variation explained by these two variables, the study suggests that policymakers and stakeholders in Uganda's SME sector prioritize programs aimed at enhancing SMEs' financial literacy and access to digital finance. Additionally, the study recognizes the presence of other factors influencing SME performance, emphasizing the need for further research and attention in future planning.
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References
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Kapurubandara, M. & Lawson, R. (2007). SMEs in developing countries need support to address the challenges of adopting e-commerce technologies. In Proceedings of the Bled eConference, (p. p. 24). 2007 (Merging and Emerging Technologies, Processes, and Institutions: Conference Proceedings.) Slovenia.
Krejcie, R. V. & Morgan, D. W. (1970). Determining sample size for research activities. Educational and Psychological Measurement, 30(3), 607–610. https:// doi.org/10.1177/001316447003000308
Kulathunga, K., Ye, J., Sharma, S. & Weerathunga, P. (2020). How does technological and financial literacy influence SME performance: Mediating role of ERM practices. Information, 11(6), 296. https://doi.org/10. 3390/info11060297
Lusardi, A. & Tufano, P. (2008). Debt literacy, financial experiences and over-indebtedness. National Bureau of Economic Research, 14(4), 332–368. https://doi. org/10.1017/S1474747215000232
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Minola, T. & Cassia, L. (2012). Hyper-growth of SMEs: Toward a reconciliation of entrepreneurial orientation and strategic resources. International Journal of Entrepreneurial Behaviour, & Research, 18(2), 179–197. https://doi.org/ 10.1108/13552551211204210
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Nelson, R. R. (2009). An evolutionary theory of economic change. Harvard University Press.
Okello, G. C., Mpeera, J. N., Munene, J. C. & Malinga, C. A. (2017). The relationship between access to finance and growth of SMEs in developing economies: Financial literacy as a moderator. Review of International Business and Strategy, 27(4), 520–538. https://doi.org/10.1108/RIBS-04-2017-0037
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Ozili, P. K. (2018). Impact of digital finance on financial inclusion and stability. Borsa Istanbul Review, 18(4), 329–340. https://doi.org/10.1016/j.bir.2017.12.003
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Simeyo, O., Lumumba, M., Nyabwanga, R. N., Ojera, P. & Odondo, A. J. (2011). Effect of provision of microfinance on the performance of micro-enterprises: A study of youth micro-enterprises under Kenya rural enterprises program (K-REP), Kisii County. African Journal of Business Management, 5(20), 8290–8300. https://doi.org/10. 5897/AJBM11.1419
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Pearson Tuffour, J. Kwadwo, Amoako A., Asantewa and Amartey, E. & Otuko. (2022). Assessing the Effect of Financial Literacy Among Managers on the Performance of Small-Scale Enterprises. Global Business Review, 23(5), 1200–1217. https://doi.org/10.1177/ 0972150919899753
Uganda Business Impact Survey. (2020).https://www.uncdf.org/article/5634/uganda-business-impact-survey-2020
Wernerfelt, B. (1984). A resource-based view of a firm. Strategic Management Journal, 5(2), 171–180. https:// doi.org/10.1002/smj.4250050207
Zoysa, A. D. & Herath, S. K. (2007). The impact of owner/managers’ mentality on the financial performance of SMEs in Japan: An empirical investigation. Journal of Management Development, 26(7), 652–666.
Abaho, Aarakit, Ntayi. & Kisubi. (2017). Firm Capabilities, Entrepreneurial Competency and Performance of Ugandan SMEs | Semantic Scholar
Ackah, J. & Vuvor, S. (2011). Master’s Thesis in Business Administration, MBA programme (Blekinge Tekniska). https://www.diva-portal.org/smash/get/diva2:829684/
Adele, A. & Flore-Anne, M. (2011). Assessing financial literacy in 12 countries: an OECD/INFE international pilot exercise. Journal of Pension Economics and Finance, 10(4), 657-665.
Agyapong, D. (2021). Implications of the digital economy for financial institutions in Ghana: an exploratory inquiry. Transnational Corporations Review, 13(1), 51–61. https://doi.org/10.1080/19186444.2020.1787304
Amoro, J. E., Donnas, K. & Bosma N. (2011). Global Entrepreneurship Monitor (2010) Global report. Global Entrepreneurship Research Association.
Frimpong et al., Cogent Economics & Finance. (2022). 10: 2121356 https://doi.org/10.1080/23322039.2022.2121356 Page 19 of 21
Agyapong, D. (2021). Implications of the digital economy for financial institutions in Ghana: an exploratory inquiry. Transnational Corporations Review, 13(1), 51–61. 10. 1080/19186444.2020.1787304
Agyapong, D. & Attram, A. B. (2019). Effect of owner manager’s financial literacy on the performance of SMEs in the Cape Coast Metropolis in Ghana. Journal of Global Entrepreneurship Research, 9(1). https://doi. org/10.1186/s40497-019-0191-1 Alliance for Financial Inclusion. (2016, Sep).
Alliance for Financial Inclusion. www.afi-global-org:https://www. afi-global.org/sites/default/files/publications/afi_ smefwg_wg_guideline_note_stg2.pdf
Andrews, K. R., Christensen, C. R., Guth, C. R. & Learned, E. P. (1965). Strategic choice in knowledge-based organizations: The case of the electronic industries in Algeria 1969. Irwin.
Anggadwita, G. & Mustafid, Q. Y. (2014). Identification of factors influencing the performance of small and medium enterprises (SMEs). Procedia-Social and Behavioral Sciences, 115, 415–423. https://doi.org/10.1016/j.sbspro. 2014.02.448
Atakora, A. (2013). Managing the effectiveness of financial literacy programs in Ghana. International Journal of Management and Business Research, 135–148.
Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17(1), 99–120. https://doi.org/10.1177/014920639101700108
Barney, J. B. (2001). Resource-based theories of competitive advantage: A ten-year retrospective on the resource-based view. Journal of Management, 27(6), 643–650. https://doi.org/10.1177/ 014920630102700602
Daft, R. L. (1983). Organization Theory and Design. the University of Michigan: West Publishing Company.
De Mel, S., McKenzie, D. & Woodruff, C. (2012). Business training and female enterprise start-up, growth and dynamics: Experimental evidence from Sri Lanka. Journal of Development Economics, No 199–210.
Dierickx, I. & Cool, K. (1989). Asset stock accumulation and sustainability of competitive advantage. Management Science, 35(12), 1504–1511. https://doi. org/10.1287/mnsc.35.12.1504
Donkor et al. (2018). In their study Donkor et al 2018 confirmed that strategic planning positively | Course Hero
Turyahebwa et al. (2013).article1383210783_Turyahebwa et al.pdf (academicjournals.org)
Eniola, A. A., Entebang, H. & Law, K. L. (2016). Financial literacy and SME firm performance. International Journal of Research Studies in Management, 5(1), 31–43. https://doi.org/10.5861/ijrsm.2015.1304
Gathungu, J. M. & Sabana, B. M. (2018). Entrepreneur financial literacy, financial access, transaction costs and performance of microenterprises in Nairobi City County in Kenya. Global Journal of Management and Business Research, 18(6–A https://journalofbusiness. org/index.php/GJMBR/article/view/2548)
GSMA. (2015). State of industry report, mobile money.
Henard, D. H. & McFadyen, M. (2012). Resource dedication and new product performance: A resource-based view. Journal of Product Innovation Management. How Does Technological and Financial Literacy? n.d. 29(2), 193–204. https://doi.org/10.1111/ j.1540-5885.2011.00889.x
Hernando I. & Nieto, M. J. (2007). Is the Internet delivery channel changing banks’ performance? The case of Spanish banks. Journal of Banking & Finance, 31(4), 1083–1099. 10.1016/j.jbankfin.2006.10.011
Hussain, J., Salia, S. & Karim A. (2018). Is knowledge that powerful? Financial literacy and access to finance. JSBED, 25(6), 985–1003. 10.1108/JSBED-01-2018-0021
Hussain, J., Salia, S. & Karim, A. (2019). Is knowledge that powerful? Financial literacy and access to finance. Journal of Small Business and Enterprise Development, 25(6), 985–1003. https://doi.org/10. 1108/JSBED-01-2018-0021
Kapurubandara, M. & Lawson, R. (2007). SMEs in developing countries need support to address the challenges of adopting e-commerce technologies. In Proceedings of the Bled eConference, (p. p. 24). 2007 (Merging and Emerging Technologies, Processes, and Institutions: Conference Proceedings.) Slovenia.
Krejcie, R. V. & Morgan, D. W. (1970). Determining sample size for research activities. Educational and Psychological Measurement, 30(3), 607–610. https:// doi.org/10.1177/001316447003000308
Kulathunga, K., Ye, J., Sharma, S. & Weerathunga, P. (2020). How does technological and financial literacy influence SME performance: Mediating role of ERM practices. Information, 11(6), 296. https://doi.org/10. 3390/info11060297
Lusardi, A. & Tufano, P. (2008). Debt literacy, financial experiences and over-indebtedness. National Bureau of Economic Research, 14(4), 332–368. https://doi. org/10.1017/S1474747215000232
Marriott, N., Mellett, H., Marriott, N. & Mellett, H. (1996). Health care managers’ financial skills: Measurement, analysis and implications. Accounting Education, 5(1), 61–74. https://doi.org/10.1080/09639289600000006
Mata, J. F., Fuerst, W. L. & Barney, J. B. (1995). Information Technology and sustained competitive advantage: A resource-based (pp. 489–505): Management Information Systems Research Center, University of Minnesota.
Minola, T. & Cassia, L. (2012). Hyper-growth of SMEs: Toward a reconciliation of entrepreneurial orientation and strategic resources. International Journal of Entrepreneurial Behaviour, & Research, 18(2), 179–197. https://doi.org/ 10.1108/13552551211204210
Myovella, G., Karacuka, M. & Haucap, J. (2020). Digitalization and economic growth: A comparative analysis of Sub-Saharan Africa and OECD economies. Telecommunications Policy, 44(2), 101856 10.1016/j.tel pol.2019.101856
Nelson, R. R. (2009). An evolutionary theory of economic change. Harvard University Press.
Okello, G. C., Mpeera, J. N., Munene, J. C. & Malinga, C. A. (2017). The relationship between access to finance and growth of SMEs in developing economies: Financial literacy as a moderator. Review of International Business and Strategy, 27(4), 520–538. https://doi.org/10.1108/RIBS-04-2017-0037
Orbital. (2020). https://scholar.google.com/scholar?oi=bibs & cluster=8557843415484912680&btnI=1&hl=en
Ozili, P. K. (2018). Impact of digital finance on financial inclusion and stability. Borsa Istanbul Review, 18(4), 329–340. https://doi.org/10.1016/j.bir.2017.12.003
Prahaland, C. K. & Hamel, G. (1990b). The core competence of the corporation. University of Illinois at Urbana-Champaign’s Academy for Entrepreneurial Leadership Historical Research Reference in Entrepreneurship.
Roxas, H., Ashill, N. J. & Chadee, D. (2017). Effects of entrepreneurial and environmental sustainability orientations on firm performance: A study of small businesses in the Philippines. Journal of Small Business Management Forthcoming, 55, 163–178. https://doi.org/10.1111/jsbm.12259
Rural Enterprises Program. (2017). Standard manual on financial management for micro and small enterprises (The International Fund for Agricultural Development). Frimpong et al., Cogent Economics & Finance (2022), 10: 2121356 https://doi.org/10.1080/23322039.2022.2121356 Page 20 of 21
Siddik, M., Nur, Sun G., Kabira, S., Shanmugan, J. & Yanjuan, C. (2016). Impacts of e-banking on the performance of banks in a developing economy: empirical evidence from Bangladesh. Journal of Business Economics and Management, 17(6), 1066–1080. 10.3846/16111699. 2015.1068219
Simeyo, O., Lumumba, M., Nyabwanga, R. N., Ojera, P. & Odondo, A. J. (2011). Effect of provision of microfinance on the performance of micro-enterprises: A study of youth micro-enterprises under Kenya rural enterprises program (K-REP), Kisii County. African Journal of Business Management, 5(20), 8290–8300. https://doi.org/10. 5897/AJBM11.1419
Stacey, R. D. (2011). Strategic management and organizational dynamics: The challenge of complexity to ways of thinking about organizations.
Tay, S. (2019). Financial Inclusion in Africa in an Era of Internet Shutdowns. https://cipesa.org/2019/11/financial-inclusion-in-africa-in-an-era-of-internet-shutdowns/
Pearson Tuffour, J. Kwadwo, Amoako A., Asantewa and Amartey, E. & Otuko. (2022). Assessing the Effect of Financial Literacy Among Managers on the Performance of Small-Scale Enterprises. Global Business Review, 23(5), 1200–1217. https://doi.org/10.1177/ 0972150919899753
Uganda Business Impact Survey. (2020).https://www.uncdf.org/article/5634/uganda-business-impact-survey-2020
Wernerfelt, B. (1984). A resource-based view of a firm. Strategic Management Journal, 5(2), 171–180. https:// doi.org/10.1002/smj.4250050207
Zoysa, A. D. & Herath, S. K. (2007). The impact of owner/managers’ mentality on the financial performance of SMEs in Japan: An empirical investigation. Journal of Management Development, 26(7), 652–666.
Published
2024-04-07
How to Cite
Bakashaba, R., Musiita, B., & Nabachwa, S. (2024). Financial Literacy, Access to Digital Finance and Performance of Ugandan SMEs in Mbarara City. Journal of Economics and Behavioral Studies, 16(1(J), 41-51. https://doi.org/10.22610/jebs.v16i1(J).3696
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Research Paper
Copyright (c) 2024 Rennie Bakashaba, Benjamin Musiita, Sarah Nabachwa
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