EFFECT OF FINANCIAL LITERACY ON THE PERFORMANCE OF SMEs IN NIGERIA

ABSTRACT

The study examined the effect of Financial Literacy on the performance of SMEs in Nigeria. The work was set out to determine whether Financial Literacy has helped to improve the performance of SMEs in the country. The study employed primary data. The population for the study was 18,843. This consisted of owners and managers of SMEs in Edo State. The sample size determined for the study was 400 using Taro Yamane’s formular. Data were collected with the aid of structured questionnaire. A total of 390 copies of questionnaire were retrieved from the respondents.  The study carried out descriptive statistics, correlation analysis and panel regression to analyse the variables using SPSS 23. The results of the analyses show that (1) financial literacy exhibits a positive impact (0.235) on investment decisions of SMEs and statistically significant (p = 0.002) at 5% level. This suggests that financial literacy can significantly make it easier for SMEs to make investment decisions in Nigeria. (2) Financial Literacy exhibits positive impact (0.253) on preparation of financial records by SMEs and it is statistically significant (p = 0.000) at 5% level. This suggests that financial literacy significantly makes it easier for SMEs to prepare financial records. (3) Financial Literacy exhibits a positive impact (0.241) on access to funds by SMEs and it is statistically significant (p = 0.012) at 5% level. This means that Financial Literacy can significantly make it possible for SMEs to have access to more funds from banks. The study recommended that there is need for the training of owners and managers of SMEs on the importance of financial literacy so that they will be able to make better investment decisions; Owners and managers of SMEs should ensure that only qualified accounting and finance personnel are engaged as accountants in their organisations so that proper financial records can be kept in the business; The government should make policies that favour single digit interest rate for funds borrowed by SMEs.