The Mediating Role of Access to Digital Finance on the Relationship between Financial Literacy and Performance of Uganda SMEs in Mbarara City
Abstract
The study aimed to explore the potential mediating influence of access to digital finance in the relationship between financial literacy and the performance of SMEs in Uganda. To establish this link, the study used a cross-sectional methodology to collect data at a certain point in time. Barron and Kenney's (1986) four phases required each direct influence of the study variables to follow a significant criterion. These requirements were satisfied because there was a significant direct correlation between SMEs' performance and financial literacy (Beta= 0.655; p<.01). Access to digital finance and financial literacy demonstrated a considerable direct impact (Beta= 0.519; p<.01). Moreover, there was a noteworthy direct impact from SMEs' performance to their access to digital finance (Beta=0.491; p<.01). When considering access to digital finance, the direct association between financial literacy and SMEs' performance decreased from Beta=0.655 to Beta=0.548, remaining statistically significant. This indicates that access to digital finance might serve as a moderator in the connection between financial literacy and SME success. further demonstrated by the indirect effect of (0.106/0.655 x 100) percentage. 16.2%, meaning that the direct effect is explained by 83.8% in the model. It is advised that policymakers and stakeholders in Uganda's SME sector should concentrate on developing clear guidelines on how SME owners can access digital finance. This will help in training them to improve the performance of SMEs. To improve SME outcomes, methods should be developed to make it simpler for people to use digital financial services and raise their financial literacy.
Downloads
References
Ackah, J., & Vuvor, S. (2011). Master’s Thesis in Business Administration, MBA program (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.
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
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 the 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. and 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. and 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 Behavior, & Research, 18(2), 179–197. https://doi.org/ 10.1108/13552551211204210
Myovella, G. Karacuka, M. and 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
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. N., Sun, G., Kabira, S., Shanmugan, J. and 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 microfinance provision on micro enterprises' performance: 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/
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.
Copyright (c) 2024 Rennie Bakashaba, Benjamin Musiita, Sarah Nabachwa
This work is licensed under a Creative Commons Attribution 4.0 International License.
Author (s) should affirm that the material has not been published previously. It has not been submitted and it is not under consideration by any other journal. At the same time author (s) need to execute a publication permission agreement to assume the responsibility of the submitted content and any omissions and errors therein. After submission of a revised paper in the light of suggestions of the reviewers, editorial team edits and formats manuscripts to bring uniformity and standardization in published material.
This work will be licensed under Creative Commons Attribution 4.0 International (CC BY 4.0) and under condition of the license, users are free to read, copy, remix, transform, redistribute, download, print, search or link to the full texts of articles and even build upon their work as long as they credit the author for the original work. Moreover, as per journal policy author (s) hold and retain copyrights without any restrictions.
