Effect of Financial Literacy on The Performance of Small And Micro Enterprises in Jimma Town

Abstract

A survey was administered in Jimma town SMEs to identify the financial literacy level among SMEs owners and its impact on performance of their business. Since majority of the respondents were male, age group between 26-45 and at least professional certificate of educational level, existing financial literacy gap or performance represents these categories. Regardless of existence or absence of finical literacy, current status of the enterprises as compared to their initial condition was assessed. The result shows that most of the enterprises showing positive growth in terms of their market share, volume sale, and in overall performance. Furthermore, financial literacy knowhow and its level on the enterprises was evaluated through assessing financial management system, saving practice, record keeping experience and budget management capacity of the enterprises. Results revealed that, enterprises are still showing limitations in terms of efficient financial management skill, record keeping as an information source to make decision, sufficient saving for further expansion of the enterprises, and limited budget planning knowhow and skill for monitoring purpose. Despite those limitations, enterprises exhibiting a positive growth which might be associated with conventional business practices. Had it been the traditional trend further supplemented with good financial literacy practices, those enterprises in a positive trend could show a remarkable growth. This is because, the correlation result confirms that, there is a positive corelation of financial literacy on performance of the enterprises. Eventually, absence of relevant and consistent financial literacy related training for the enterprises identified as a critical limiting factor to support the day to day efficient business of the enterprises. In order to enhance their performance, enterprises should be supported with trainings in areas of financial management system, saving culture and discipline, good record keeping practices and efficient budget planning skill.