The effect of financial literacy on the profitability of small and micro interprise in case of jimma town

Abstract

The main objective of the study was to investigate the effect of financial literacy on the profitability of micro and small enterprises owners of Jimma town. The study aimed to measure and describes financial literacy and profitability of SME operators in Jimma town, examining the effect of financial knowledge, behavior and attitude on the profitability of SMEs. The study adopted a descriptive research design for analyzing the obtained primary data and to give clear understanding of the research objectives. To achieve the objectives, the primary data was gathered through issuing a set of structured questionnaires to a sample population of 384 owners/managers of SMEs that have their own businesses in Jimma town. probability sampling method were used by applying specifically stratified sampling techniques and randomly select respondents from each strata to collect data and to achieve the objective of the study. A descriptive statistics and inferential statistics were employed for analyzing the effect of financial literacy on profitability of MSE’s. A Correlation analysis was used to find out the relationship between financial knowledge, financial behavior and financial attitude of SMEs operators and profitability. Multiple Linear Regression analyses of variable, frequency distribution were used to analyze the findings. These analyses were carried out using Statistical Package for the Social Sciences (IBM SPSS) statistical software version 24 and the report was presented using both frequency tables and graphs. The finding suggests that most of the financial literacy such that financial knowledge, financial attitude and financial behavior have positive and significant effect on profitability of SMEs owners in Jimma town. The study concludes that financial knowledge has a necessarily effect in translating into profits. It also concludes that good financial behavior contributes to profitability of MSE’s. Also, positive attitude towards future and social influences for acquisition of skills translates into profits for micro and small enterprises. The study therefore, recommended that financial education and training programs should have to be given by the government along with other institutions, to encourage application of financial knowledge on activities of business owners. These programs should also be able to motivate and encourage positive attitude toward future orientation and growth of the businesses.