Financial literacy and financial performance of micro and small sized enterprises in Kira municipality

Abstract

The aim of this study was to investigate the effect of financial literacy on financial performance of Micro and small sized enterprises in Kira Municipality. The study specifically addressed the following study objectives; to examine the effect of investment literacy on financial literacy on Micro and Small sized enterprises in Kira municipality, to examine effect of budgeting literacy on financial literacy on Micro and Small sized enterprises in Kira municipality and to examine the effect of investment literacy on financial literacy on Micro and Small sized enterprises in Kira municipality. Three null hypotheses were tested based on the objectives. This study was guided by the Resource Based Theory. A cross-sectional survey design was adopted where both quantitative and qualitative data were collected using questionnaires and interviews respectively. A study population of 420 MSEs was considered for collection of quantitative data using questionnaires where a sample of 201 was used and determined using Krejice and Morgan table (1970).Both stratified and simple sampling technique were used to determine the sample. Quantitative data collected was analyzed using regression analysis and descriptive statistics with support of SPSS version 23.0 while qualitative data was analyzed using content analysis. Prerequisite tests were carried out where data was tested for normality and multi-collinearity, all data was normally distributed and lacked collinearity effects. The study used regression analysis to address the study objectives that sought to establish the effect between the variables. Findings from the regression showed that investment literacy and borrowing literacy positively and significantly affect financial performance of MSEs. However, budgeting literacy insignificantly affects financial performance of MSEs in Kira Municipality. In general, the study found out that financial literacy positively and significantly affects financial performance of MSEs. The study therefore concludes that financial literacy positively and significantly affects financial performance and recommends that government and other development partners like African Development Bank (ADB) should organize specific financial literacy trainings based on whether a company is Small, Micro or Medium sized other than organizing general financial literacy trainings yet companies have different needs and face slightly different challenges and also massive sensitization of MSEs by financial agencies as these companies lack sufficient information on what and where to invest for bigger returns and less risks. The researcher suggests that other studies be based on other dimensions of financial literacy like savings, accountability and with a slightly larger sample size bigger than that of a municipality so as to make a generalization of the effect of financial literacy and financial performance of MSEs in Uganda. Key terms; Financial literacy, Investment literacy, borrowing literacy, budgeting literacy and financial performance