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Effect of Financial Literacy on the Growth of MSMEs

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DOI: 10.47119/IJRP1009011220212541

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Effect of Financial Literacy on the Growth of Micro, Small and

Medium Enterprises (MSMEs)
Pureheart Ogheneogaga Irikefe a, Michael Isaac Opusunju b,
E-mail: donpheart@yahoo.com; Phone No.: +2347033515221
a
Department of Business Administration, Bingham University, PMB 005, Karu, Nasarawa State
b
Department of Business Administration, Nile University of Nigeria, Abuja.

Abstract

This study assessed the effect of financial literacy on the growth of micro, small and medium enterprises (MSMEs) in
Murg shopping mall, Abuja, Nigeria. The study utilised a descriptive survey research design wherein survey research
instruments were employed. The study was carried out using a primary source in which qualitative data were collected
using structured questionnaires and converted to quantitative data using five-point Likert scaling. An aggregate of 208
data collection instruments was administered, of which, 200 were properly filled and returned; representing a 96.1%
returned rate. The data was then analysed with the application of inferential statistics like Regression and Analysis of
Variance. Arising from the result, the null hypothesis was rejected since the calculated value was greater than the
critical value (107.666>2.42). In conclusion, there was a significant effect of financial literacy on the growth of MSMEs
in Murg Shopping Mall, Abuja. However, of the four proxies of financial literacy tested, debt management literacy had
the highest positive impact on MSMEs’ growth, followed by bookkeeping literacy and banking services literacy,
whereas budgeting literacy was insignificant. It was therefore recommended that entities who wish to carry out effective
corporate social responsibilities to grow MSMEs, should train them in the aspects of debt management literacy, banking
services literacy and bookkeeping literacy.

Key Words: Financial Literacy, MSMEs, Business Sustainability, Enterprise, Growth.

1. Introduction

Financial literacy encompasses the education and understanding of various financial areas including subjects related
to managing personal finance, money and investing (Tyson, 2018). Micro, Small and Medium Enterprises (MSMEs) on
the other hand generally refers to businesses whose personnel numbers and asset base fall below and/or within certain
limits. According to the Bank of Industry (2015), MSMEs are enterprises with not more than 200 employees and an asset
base of not more than ₦500 million. Financial literacy is particularly important to MSMEs in that it gives business owners
the tools to manage and grow their organizations effectively (Cote, 2020).

At individual units, MSMEs may be small, but together they account for up to a huge portion of a nation’s Gross
Domestic Product (GDP), help to create employment and are often seen as very vital for the growth and innovation of
dynamic economies (Anigbogu et al, 2014). In large economies like the United Kingdom, United States, China amongst
others, several studies have shown that small businesses hold a vast share of their employment rate and economic growth
(Ceglie & Dini, 1999; Schaper, 2002; United States Trade Representative, 2014). In Africa, MSMEs is the leading sector
and accounts for almost 90 per cent of all the enterprises in rural and urban areas. According to Thai (2013), “MSMEs are
considered to very important propellers for obtaining national development goals, such as poverty alleviation and
economic growth in Africa.” In the largest economy in Africa, Aina (2007), opined that the contributions of MSMEs to
Nigeria’s economy are incontestable; as about 10 per cent of the total manufacturing output and 70 per cent of the industrial
employment are by MSMEs. These amongst others shows that MSMEs are indeed invaluable.

Notwithstanding the significance of MSMEs globally, these enterprises are reported to often have both a high birth
rate and at the same time high death rate (Turyahebwa, Sunday & Sekajugo, 2013; Fatoki, 2014). Over the years, several
MSMEs in Abuja, Nigeria, especially Murg shopping mall, apply financial literacy in managing their businesses to ensure
growth—in terms of increase in sales revenue, number of branches and/or accumulated assets. Yet, most of them are not
growing and seldom survive for more than three years (Ahmed, Opusunju & Murat, 2020).

Extant studies such as Oluoch (2014), revealed that most MSMEs tend to continue to be “small” and be more
susceptible to failures because of simple management mistakes and low financial literacy. In addition, Fatoki (2014),
averred that the difficult financial decisions that MSME entrepreneurs make in their personal or business finances could
also be a contributing factor to the failures. In a different vein, Tela, Gombe and Alhassan (2018), argued that the high
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mortality rate of MSMEs in Nigeria is the problem of inadequate capital bases due to the unwillingness of financial
institutions to grant them enough loans. Owenvbiugie and Igbinedion (2015), equally argued that the major reason for
MSMEs failures and stunted growth are due to inadequate financing; that if MSMEs are inadequately financed there is
every tendency that many of them may not survive. Contrarily, Winarno and Wijijayanti (2018), carried out a study on the
correlation between proxies of financial literacy and SMEs’ performance, their results revealed no correlation. Hitherto
the foregoing, vis-à-vis the perplexity of the effectiveness of financial literacy in promoting MSMEs’ growth, there
remains an empirical gap to which this research sought to fill.

The objective of this research is to examine the effectiveness of financial literacy on the growth of micro, small and
medium enterprises (MSMEs). The specific objectives are to assess the effectiveness of the proxies of financial literacy
viz. debt management literacy, budgeting literacy, banking services literacy and bookkeeping literacy on MSMEs’ growth.
The scope of the study encompasses enterprises in Murg shopping mall, Abuja, Nigeria. Heretofore, the study hypothesised
that there is no significant effect of financial literacy on the growth of MSMEs.

2. Literature Review

2.1. Conceptual Framework

2.1.1. Financial Literacy

The keyword ‘Financial Literacy’ comprises of two words ‘Financial’ and ‘Literacy.’ According to the Business
Dictionary (2007), financial is a wide-ranging term used to define various aspects of finance or the financial industry, for
instance, financial advisors, financial instruments, financial institutions, financial services, or financial planning.
UNESCO (2006), posit that the understandings of literacy have stretched from the simple view that literacy encompasses
the process of acquiring basic cognitive skills, to the utilisation of such skills in ways that contribute to socio-economic
development, to the development of the aptitude for critical reflection and social awareness as a basis for personal and
social change. In combining these two definitions, one can posit that Financial Literacy is the ability to skilfully apply
financial knowledge and principles for positive contribution to socio-economic development.

Gale and Levine (2010), defined financial literacy as the inherent or acquired skill to make up-to-date decisions and
effective judgments concerning the administration and use of money and wealth. They averred that financially illiterate
family units make poor choices that affect not only the decision-makers themselves but also their families and the public
at large. In line with this, improving financial literacy should be the first base concern for public policy, and should be a
focal point for research.

According to Irikefe (2019), financial literacy is the ability to understand how money works, it entails proficiency in
the knowledge and application of time-honoured and basic financial concepts and principles like financial planning,
compound interest, debt management, profitable savings strategies and value of money generally. He opined that, for
entrepreneurs to escape financial illiteracy, they must possess and be able to apply sheer knowledge of budget-making
skills; the ability to track and control expenditure; debt management skills; and effective planning for retirement. Arising
from the foregoing, one can ascertain that financial literacy has to do with how a person handles money to earn it—how
money is invested to make “more money.” The study took cognisance of these concepts of financial literacy.

2.1.2. Micro, Small and Medium Enterprises (MSMEs)

As earlier mentioned, Micro, Small and Medium Enterprises (MSMEs) generally refers to businesses whose personnel
numbers and asset base fall below and/or within certain limits. It represents different things to different authorities.

Small and medium enterprises (SMEs) are independent firms that are mostly non-subsidiary, which employ less than
a certain number of employees. This number varies across states. The highest designation of an SME we see in the
European Union is 250 staff. However, some other countries set their high limit at 200 staff, whereas the United States of
America considers SMEs to include companies with less than 500 staff (OECD, 2005). Small firms are generally those
with less than 50 staff, while micro-enterprises have at most 10, or in some cases, 5 staff.

This study centred on the concept of MSMEs in Nigeria according to the Bank of Industry (2015). They established
that MSMEs are enterprises with not more than 200 employees, and asset base of not more than N500 million, such that
micro-enterprises have 1-10 employees (asset base of not more than ₦5 million); small enterprises: 11-50 employees (asset
base of between above ₦5 million and ₦100 million); and medium enterprises: 51-200 employees (asset base of between
above ₦100 million and ₦500 million).

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2.1.3. A Relationship between Financial Literacy and MSMEs

MSMEs are the link between minor businesses to major and highly developed large businesses and provide a platform
for development. MSMEs play an essential role as facilitative development through the establishment of inputs and
services for industries while at the same time providing direct goods and services to consumers (Fjose et al, 2010). Studies
have shown that the attitude, education, and skill of owners or managers, have a significant impact on the growth of small
enterprises, and will be reflected in the strategic choices, and ways in which the business is operated (Covin & Slevin,
1991).

Wickham (1998:223), viewed business growth from four interdependent perspectives: financial, strategic, structural
and organisational. These can be found in Wickham’s model of business growth dynamics. He averred that a business
owner has to consider all of them when planning for growth. Such that missing one element is enough to cause business
failure or lead to other troubles.

Lusimbo (2016), established a conceptual relationship model wherein ‘micro and small enterprises (MSEs) Growth’
is the dependent variable and ‘Financial Literacy’ is the independent variable. She averred that financial literacy could be
measured with either or a combination of four proxies viz. debt management literacy; budgeting literacy; banking services
literacy; and bookkeeping literacy. This study was carried out taking cognisance of this conceptual framework, and
depicted it as shown in Figure 2.1 below.

Figure 2.1: Conceptual Framework of Financial Literacy and Micro and Small Enterprises Growth

Source: Researcher’s Depiction, 2021.

2.2. Theoretical Framework

In his study, Staubus (1959), an advocate for the continued improvement of the standards and practices of financial
reporting, developed the Residual Equity Theory. This decision-utility theory was the first to link cash flows to the
measurement of assets and liabilities and their importance in investment decisions. It eventually became a basis for the
generally accepted accounting ideologies, and also the Financial Accounting Standards Board’s conceptual framework.
The main objective of the residual equity approach is to imbue the culture of better financial reporting in good financial
management practices. In a going concern for MSMEs, the theory establishes a guide for financial education. Such that
the current value of a business stock is dependent primarily upon the expectation of future surpluses. Future financial
status is dependent upon expectations of total receipts minus specific pledged obligations, payments to definite equity
holders and necessities for reinvestment.

To achieve sustainable growth and obtain a business advantage, Penrose (1959), developed is a managerial framework
used to determine calculated resources with the potential to deliver comparative advantage to a firm. She developed what
is known today as the Resource-Based View Theory. She posits that knowledge, motivation and entrepreneurial talent are
the main determinants of a firm’s growth. The theory emphasised the entrepreneur’s view of the future and possible
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opportunities that most determine the shape of the company over time. With regards to MSMEs, growth depends on how
well the owner-manager is equipped with the right information to make sound decisions in the business, can pursue and
seize opportunities, can build trust in others and, in turn, convince them to invest in his venture. In line with this theory,
this study advocates that financial literacy could affect the growth of MSMEs—by improving the ability of the owner or
manager to make sound financial decisions, raise the required capital and put in place appropriate financial performance
measurement systems, as well as, take corrective actions.

Another important theory is the Financial Literacy Theory. It avers that the performance of people with very high level
of financial literacy is dependent on the dominance of two thinking styles they possess viz. intuition and cognition (Evans,
2008). According to Atkinson and Messy (2005), financial literacy theory covers the combination of investors’
understanding of financial yields and concepts and their ability and confidence to appreciate financial risks and
opportunities. This theory is important to this research because it highlights MSMEs’ ability to make up-to-date choices,
to know where to go if they needed help and to take other effective actions to advance their financial well-being.

2.3. Empirical Review

Extant studies by other researchers presented the opportunity for the researcher to identify and fill gaps left by previous
studies, and by so doing, enrich the knowledge of understanding of financial and MSMEs growth. Nonetheless, the
significance of financial literacy in managing businesses cannot be overemphasised (Kimani & Ntoiti, 2015; Lusimbo,
2016; Ye & Kulathunga, 2019).

Kimani and Ntoiti (2015), sought to evaluate the effects of financial literacy on the performance of youth-led
enterprises. The study adopted a descriptive research survey design for a population of 464 youth-led enterprises under
the training programme of Equity Group Foundation in Kiambu County. Primary data was gathered by the use of structured
questionnaires and captured through a 5-point type Likert scale. The data gathered from the questionnaires were analysed
quantitatively using Statistical Package for Social Sciences (SPSS) computer software, which generated both descriptive
and inferential statistics. The study recognised that there was a positive correlation between the dependent variable
(Performance of Youth-led Enterprises) and the independent variables (Budgeting Literacy, Debt Management Literacy,
Banking Services Literacy, and Record-Keeping Literacy), but in varying magnitudes. Debt Management Literacy was
found to affect the performance of Youth-led Enterprises in the most, while Record-Keeping Literacy, the least. Whilst
Kimani and Ntoiti (2015), used a sound method of analysis for the sample, but the technique used in obtaining the sample
size was unclear. Nonetheless, the study ruled that Financial Literacy aids in the enhancement of growth and performance
of youth-led enterprises which are key drivers to economic development.

Chepngetich (2016), carried out a study of the effect of borrowing literacy and budgeting literacy as financial literacy
on the performance of SMEs in Uasin Gishu County, Kenya. The study adopted an explanatory research design, wherein
from the target population of 1053 SMEs, a sample size of 290 was studied. The study utilised the cluster sampling
technique in the selection of SMEs. The data were collected using structured questionnaires completed by the
owners/managers. The researcher used inferential statistics; in the form of Analysis of Variance (ANOVA) to show the
relationship between the variables. The study exhibited a strong positive relationship between budgeting financial literacy
and SME performance, and a negative relationship between borrowing financial literacy and SME performance. Contrary
to Owenvbiugie and Igbinedion (2015), the study by Chepngetich (2016), goes on to show that access or means to obtain
finance does not affect growth, but the knowledge of and ability to budget and manage available finance. Whilst the results
of Chepngetich (2016), seems plausible, his discussion was unclear as he repeatedly interpreted “negative coefficients” as
“weak” rather than what it is.

Lusimbo (2016), sought to determine the relationship between financial literacy and the growth of micro and small
enterprises (MSEs) in Kakamega Central Sub County, Kenya. The study targeted a population of 1300 registered MSEs
and adopted a descriptive cross-sectional survey design. A stratified proportionate sampling technique was used to select
respondents, where 306 MSEs were selected appropriately as the sample. A structured questionnaire was used to collect
primary data, and a Chi-square test of independence and descriptive statistics were used to determine the relationship
between financial literacy and the growth of MSMEs. The results revealed that those businesses whose managers have
low financial literacy have recorded minimal or no growth over the years. Although the study by Lusimbo (2016) was
systematic, the method of analysis (Chi-square) was unsatisfactory because of the numbers of variables of financial literacy
tested against business growth; at least a regression analysis would be more precise. Nonetheless, the research process
shows a sheer amount of logic.

Likewise, Chepkemoi, Patrick and Njoroge (2017), used four proxies for financial literacy to test how it affects the
profitability of SMEs. They sought to identify the effects of financial literacy training on business profitability by SMEs
in coastal regions, using Kwale County, Kenya as a case study. The research design followed a descriptive survey method,
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where a sample of 74 SMEs selected randomly, was employed for the research. The four proxies of financial literacy that
were investigated include working capital management, savings, bookkeeping, and financial accessibility skills, against
profitability being the dependent variable. The results were found to be statistically significant for all the variables although
with a negative relationship with bookkeeping and savings. Based on the findings, it was concluded that financial literacy
affected the profitability of SMEs. Although the research process of Chepkemoi et al (2017) was quite clear, he failed to
discuss or give possible reasons for the negative relationship between bookkeeping and savings tested. However, the
method of analysis employed by Chepkemoi et al (2017), seemed appropriate for the study.

With regards to the sustainability of SMEs, Fitria, Yurniwati and Rahman (2018), sought to empirically examine the
effect of financial literacy on the growth and sustainability of SMEs in the handicraft sector in Padang City. The
respondents in the study were 150 persons selected based on the purposive sampling method. Furthermore, the hypothesis
testing was carried out using Structural Equation Modelling (SEM) analysis with version 12.0 of the STATA programme.
The result of this study indicated that whilst financial literacy may lead to growth, it does not affect the sustainability of
SMEs in the handicraft sector. Ye and Kulathunga (2019), equally assessed how financial literacy promotes sustainability
in SMEs in Sri Lanka but found a positive significant effect. Meanwhile, Ye and Kulathunga (2019), equally used SEM
analysis. Perhaps the contrasting results of Fitria et al (2018) and Ye and Kulathunga (2019), was as a result of the different
industry that was researched. Also, there is a need to re-examine the residuals in the researches to see if there are misfits,
even though overall models appear good.

Kaur and Bansal (2021), examined how financial literacy, financial access and company development influence the
sustainability and growth of MSMEs. They gathered data from 438 owner-managers of MSMEs via questionnaires. Their
research showed that financial literacy, financial availability and company growth are positively correlated with firm
sustainability when using partial least squares (PLS). However, their research found that firm growth and access to finance
moderate the anticipated connection between financial literacy and sustainability. Also, that financial literacy can
effectively grow MSMEs and promote firm sustainability. Whilst the researchers used an effective method of analysis
(PLS) for the variables, they failed to test the data for unobserved heterogeneity. Since the data are segmented, the global
PLS solution may be misleading.

Paradoxical to the previous empirical works reviewed in this study, Eresia-Eke and Raath (2013), investigated a
possible relationship between MSMEs owners’ financial literacy and business growth. Their study was unable to
demonstrate that a statistically significant relationship existed between owners’ financial literacy and business growth.
The research was an ex post facto and cross-sectional empirical study on 105 respondents whose response rate was 71%
from MSMEs drawn from a local chamber of commerce in the Gauteng Province of South Africa. Eresia-Eke and Raath
(2013), employed Fisher’s exact test method of analysis and the chi-square method to corroborate their result.
Nevertheless, even though the conclusion of the study seems to contradict the position of Lusimbo (2016), it is not
necessarily so. This is because, the study did not make any distinction of MSMEs whose owners were financially illiterate,
had employed financially literate persons to assist in managing the affairs of the organisation. As such, MSMEs whose
owners are not financially literate could be leveraging on the competence of others, hence the result.

Also, the more recent study by Winarno and Wijijayanti (2018), presented an intriguing result similar to that of Eresia-
Eke and Raath (2013). Their study was aimed at examining the entrepreneurial literacy level of SMEs business actors and
its correlation to their performances in Batu East Java. The study was carried out on a population of 520 SMEs, using a
sample size of 135 SMEs. The research design was an ex post facto correlational survey, utilising sequential explanatory
mix methods. Their survey result indicates that SMEs literacy regarding risk in Batu is considered high or well literate,
while regarding functional aspects is considered moderately literate. However, additional results from their study revealed
no correlation between entrepreneurial literacy and the performance of SMEs business actors in Batu. This result went
contrary to most results of similar research. This variation may be a result of the method of analysis employed by Winarno
and Wijijayanti (2018), testing too many variables with several indicators at the same time. Nonetheless, it embedded
curiosity for further research.

Most of the reviews on the effect of financial literacy on a firm’s growth or performance showed there were significant
relationships between the variables. However, some of them showed no significant effect of financial literacy on a firm’s
growth or performance (Eresia-Eke & Raath, 2013; Fitria et al, 2018; Winarno & Wijijayanti, 2018), which were attributed
to unclear data that were collected and analysed or poor choice system of analysis. This has presented a gap that needs to
be researched. Nonetheless, the empirical literature established a foundation for a deeper understanding of the study.

3. Methodology

The study utilised a descriptive survey research design wherein survey research questionnaires were primarily
employed. The study is centred on micro, small and medium enterprises (MSMEs) in Murg Shopping Mall, Abuja, which
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has a population of about 450 MSMEs. With regards to the sample of the study, a random sampling method was employed
at a confidence level of 95%, whilst the margin of error is 5%, cumulating an interim sample size of about 208 using the
formula: n = N*X / (X + N – 1), where, X = Zα/22 *p*(1-p) / MOE2 (Daniel, 1999). Wherein, Zα/2 is the critical value of
the Normal distribution at α/2 (i.e. for a confidence level of 95%, α is 0.05 and the critical value is 1.96), MOE is the
margin of error (0.05), p is the sample proportion (50%), and N is the population size (450).

An aggregate of 208 data instruments (questionnaires) was administered out, of which 200 were properly filled, and
returned, representing a 96.1% returned rate. The questionnaires were close-ended questions and had answer options like
“Strongly Disagree, Disagree, Neutral, Agree, Strongly Agree.” It was divided into two sections which were as follows:
Personal data; and Research Question (if there is any significant effect of financial literacy on the growth of MSMEs),
wherein questions on bookkeeping literacy, budgeting literacy, debt management literacy, and banking services literacy
were used as proxies of financial literacy. The questionnaire used in this study was assessed and examined for its face
cogency. The face cogency was reached through examining carefully the layout and structure of the questionnaire.

The data analysis process involved the method of extracting, compiling, and modelling the raw data for purposes of
obtaining practical data that can be applied to framing conclusions, predicting outcomes or supporting decisions in
scientific, business, and social science settings (Pituch & Stevens, 2016). The data obtained from the administration of
questionnaires to the respondent were analysed with the application of inferential statistics like regression and Analysis of
Variance (ANOVA). All statistical data analyses were performed using SPSS version 25.0 (IBM Corp, 2017).

The study adopted the model: Y= f(B0+B1X1+B2X2+B3X3+B4X4), whereby Y= Growth of MSMEs; f= function of;
B0= constant variable; X1= Book keeping literacy; X2= Budgeting literacy; X3= Banking services literacy; and X4= Debt
management literacy.

4. Result and Discussion

4.1. Characteristics of Respondents

With regards to the Business Role of the total (200) respondents, 126 of them which constitutes about 63% of the total
respondents were Business Owners; 41 of them which constitutes about 20.5% of the total respondents were Managers,
while 33 of them constitutes about 16.5% of the total respondents were Sales Representatives. This was brought to bear
as in improvement; being that it was absent in the study by Eresia-Eke and Raath (2013), which was criticised in the
review—it ensured that MSMEs whose owners were financially illiterate were not leveraging on the competence of others
financially literate persons. However, 57 of the total respondents which constitute about 28.5% of the respondents have
on some occasions sought advice regarding finances from experts; whereas, 143 of them which constitutes about 71.5%
of the total respondents have not sought advice regarding finances from experts.

Concerning the level of education of the total (200) respondents, 151 of them which constitutes about 75.5% of the
total respondents have attained secondary school education; 45 of them which constitutes about 22.5% of the total
respondents were graduates of tertiary institutions, while 4 of them which constitutes about 2% of the total respondents
had post-graduate education. Which implied that the majority of the respondents have not gone beyond secondary school
education.

Also, the respondents were asked about the duration or existence of their MSME, 43 of them which constitutes about
21.5% of the total respondents have been in business for less than two years; 87 of them which constitutes about 43.5%
of the total respondents have been in business between two and five years; while 70 of them which constitutes about 35%
of the total respondents have been in business between for over five years. The genders of the respondents are such that
144 of them which constitutes about 72% of the total respondents were male while 56 of them which constitutes about
28% of the total respondents were female.

4.2. Independent Variables’ Influence on Business Growth

Table 1: Descriptive Statistics

Mean Standard Deviation
MSMEs growth: In sales revenue and accumulated assets 2.45 0.165
Bookkeeping literacy (X1) 3.05 0.036
Budgeting literacy (X2) 3.24 0.109
Banking services (X3) 2.65 1.038
Debt management (X4) 3.75 0.024
(Source: Field Data, 2021).
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The results in Table 1 show the mean responses on Financial Literacy, as well as, the Growth of MSMEs in Murg
Shopping Mall. The Growth of MSMEs there revealed that the growth rate of the respondents since they have been in
business is moderate as shown by a mean of 2.45 and a standard deviation of 0.165. The bookkeeping literacy is slightly
above average as shown by a mean of 3.05 and a standard deviation of 0.036. Similarly, budgeting literacy of the
respondents is also slightly above average as shown by a mean of 3.24 and a standard deviation of 0.109. Whereas, banking
services literacy of the respondents is about average as shown by a mean of 2.65 and a standard deviation of 1.038. Finally,
the debt management literacy of the respondents is fairly high as shown by a mean of 3.75 and a standard deviation of
0.024.

4.3. Inferential Statistics

Table 2. below shows a model summary that is used to measure how well the regression model fits the data.

Table 2: Regression Analysis

Model R R Square Adjusted R Square Std. Error of the Estimate
1 0.830a 0.688 0.682 0.058
a. Predictors: (Constant), Log_(X1, X2, X3, X4)
(Source: Researcher’s Computation, 2021).

As shown in the table above, R is used to measure the quality of the prediction of the dependent variable, 0.830
indicates a good level of prediction of about 83.0%. The above model also has an R Square of 0.688 meaning that the
independent variable explains 68.8% of the variability of the dependent variable; the R Square also indicates that there are
other aspects of Financial Literacy that may influence the results other than the proxies which were tested—which
measures about 31.2%. The Adjusted R Square was 0.68.2, an indication that there was a variation of 68.2% on the Growth
of MSMEs due to changes in Financial Literacy at a 95% confidence interval. The Standard Error of the Estimate, of 0.058
is an indication of the reliability of the mean. It shows an indication that the sample mean is a more accurate reflection of
the actual population mean.

Table 3: ANOVAa
Model Sum of Squares df Mean Square F Sig.
1 Regression 1.444 4 0.361 107.666 0.000b
Residual 0.654 195 0.003
Total 2.098 199
a. Dependent Variable: MSMEs growth: In sales revenue and accumulated assets.
b. Predictors: (Constant), proxies of Financial Literacy [Log_(X1, X2, X3, X4)].
(Source: Researcher’s Computation, 2021).

From the ANOVA statistics in the table above, the processed data, which is the population parameters, had a
significance level of 0.0%, which shows that the data is ideal for concluding the population parameters as the value of
significance (p-value) is less than 5%. The calculated value was greater than the critical value (107.666>2.42), an
indication that there was a significant difference in the effects of Financial Literacy on MSMEs in determining their
growth. And as such, the null hypothesis was not accepted, in favour of the alternate hypothesis that was accepted.

Table 4: Coefficient of Determination

Unstandardised Standardised
Coefficients Coefficients
Model B Std. Error Beta t Sig.
1 (Constant) -8.133 0.827 -9.832 0.000
Log_(Bookkeeping literacy) 1.460 0.335 0.350 4.353 0.001
Log_(Budgeting literacy) 0.058 0.035 0.066 1.634 0.104
Log_(Banking services literacy) 0.252 0.043 0.283 5.890 0.002
Log_(Debt management literacy) 1.902 0.513 0.302 3.711 0.000
a. Dependent Variable: MSMEs growth: In sales revenue and accumulated assets.
(Source: Researcher’s Computation, 2021).

The established regression equation was, Y= f(B0+B1X1+B2X2+B3X3+B4X4). However, due to the data being not
normally distributed, logarithm was applied to the proxies leaving the equation at Y = -8.133 + 1.460Log_X1 +
0.058Log_X2 + 0.252Log_X3 + 1.902Log_X4.
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From the above regression equation, it was revealed that holding the proxies of Financial Literacy in this model, which
are bookkeeping literacy, budgeting literacy, banking services literacy and debt management literacy to a constant zero,
Growth of MSMEs would stand at -8.133. Such that, a unit increase in bookkeeping literacy would lead to an increase in
Growth of MSMEs by a factor of 1.123; with bookkeeping literacy being significant. Also, a unit increase in budgeting
literacy may lead to an increase in the Growth of MSMEs by a factor of 0.058, however, the t-test revealed that budgeting
literacy is not significant; being that the significance of budgeting literacy (10.4%) is above the study 5% significance
level. Furthermore, a unit increase in banking services literacy would significantly lead to an increase in the Growth of
MSMEs by a factor of 0.252, and a unit increase in debt management literacy would lead to a significant increase in the
Growth of MSMEs by a factor of 1.902. This depicts that debt management literacy continues to have the leading effect
on MSMEs performance, followed by bookkeeping skills and banking services literacy.

At 5% level of significance and 95% level of confidence, bookkeeping literacy, banking services literacy and debt
management literacy are significant in explaining the relationship between financial literacy and growth of MSMEs in
Murg Shopping Mall, Abuja since their levels of significance are below the base significance level of 0.05. However,
budgeting literacy appeared to be insignificant towards the growth of MSMEs in Murg Shopping Mall, Abuja since its
level of significance is above the base significance level of 0.05.

5. Conclusion and Recommendations

From the findings of this study, the growth of micro, small and medium enterprises (MSMEs) was affected by Financial
Literacy comprising of bookkeeping literacy, banking services literacy and debt management literacy. And among the
proxies of Financial Literacy tested, debt management literacy had the leading impact on the Growth of MSMEs; this is
made possible by MSMEs adequately taking advantage of the variety of credit products and services, such as loan supports
for expansion, fair payback terms from financial technology companies and many others. Bookkeeping literacy also helps
MSMEs in budgeting accurately, preparing for tax, maintaining organised records, easily seeing business targets etc. which
results in growth; likewise, for banking services literacy.

Meanwhile, some MSMEs who may have financial literate managers and are not growing may be as a result of them
focusing on budgeting, rather than debt management, bookkeeping and/or banking services. From the results of the study,
budgeting appeared to be the only insignificant proxy of financial literacy with regards to MSMEs growth. Furthermore,
irrespective of the educational background of MSMEs owners, managers or sales representatives, practices that suggest
financial literacy can be developed from interaction with relevant stakeholders like bankers or customers or financial
experts which may, in turn, lead to growth.

5.1. Recommendations

The study recommends the following:

 Since the study showed that debt management literacy had the leading effect on MSMEs growth, followed by
bookkeeping literacy and banking services literacy, there is the need for MSMEs to be trained in these areas to promote
growth. Governments or organisations who wish to carry out effective corporate social responsibilities to promote
MSMEs should train them in the aspects of debt management literacy, banking services literacy and bookkeeping
literacy. This has positive economic implications. According to Anigbogu et al (2014), MSMEs contribute greatly to
generating employment and overall growth of the GDP of nations. Such that when MSMEs grow, it has a direct impact
on national economic growth.
 Financially literate MSMEs who may not be growing should reassess their financial literacy skills and develop in the
areas of debt management, bookkeeping and banking services, as opposed to budgeting literacy.
 Financial institutions especially banks and financial technology companies should provide training to MSMEs to build
their knowledge on the existing financial products and services, and also how MSMEs can take advantage of existing
financial products and services to maximise growth.
 Women contribute about 28% of the MSMEs in the Murg shopping mall, therefore the need for women empowerment
initiatives on financial literacy to be provided is imperative. Such an initiative would help grow the women-owned
MSMEs in the area.

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392

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