Case Study Report on Financial Literacy and firm performance of SMEs
The study will be organised into five main chapters.
- Chapter One i will give an introduction to the study, discuss the background to the study and explain the problem statement of the study. The objectives of the study, research questions, and significance of the study, delimitations and limitations of the study as well as the organisation of the study will all be discussed in the chapter one.
- Chapter Two will deal with the review of previous literature related to the study. Discussions and analysis of the previous literature will all be introduced in the Chapter two.
- Chapter Three will focus on the study design, the population of the study, and sampling and sampling procedures.
- The Chapter Three will also shed more light on the research instruments that were employed, the data collection procedure and the data analysis procedure.
- Chapter Four will deal with the analysis of the data gathered on the field by the researcher. The research findings will all be discussed in this chapter.
- Chapter Five will present the summary of the findings, conclusions and recommendations.
CHAPTER ONE
INTRODUCTION
Financial decision making is a key part of the daily management of businesses by managers and business owners. These managers and business owners are expectedi toi resolved all variety of issues such as strategic, financial, structures, and quality improvement (Eniola and Entebang, 2017).
Most importantly, managerial and financial decisions may cause vital results with respect to firmed performanced and success according to (Hart, Milsteini & ICaggiano, 2003). Because these proceduresi naturallys contain elements of financial characteristics, to act effectively, Eniola & Entebang (2017) indicated that every manager or business owner must be financially literate.
All entrepreneurs may own businesses butt noti ally entrepreneursi are financiallyi literate (Eniola & Entebang, 2017). According to IAyyagari, Becki and iDemirguc-Kunt (2007), financial literacy is very important in makingi the right decisions that would lead to better performance of small businesses.
ILusardi, Mitchelli & Curtoi (2010) and Lusardid & Tufano (2009) suggested thati SME owners and managersi withi lowi levelsi of financiali literacy often tend to make wrongi decision as they have less participation ini thei formal financiali systemi and ofteni borrowi at highery interesti ratesi compared to counterparts who have high financial literacy.
Many researchers have suggested that many SMEs in developing countries do not perform in their first few years are usually not able to survive (Boame, Kudadze & Sulemana, 2014; Adjei, Anokye, Mintah & Offeh, 2014). What is not clear is whether financiali literacyi affects thei performanced of iSMEs that have survived in the market particularly in the Ellembelle District in Ghana. It is therefore imperative to assessy the influences of financiali literacy on the performancei ofi SMEsi in the Ellembelle District in Ghana.
Background toi the Study
Nowherei is financiali literacyi moree importanti thani ini the SMEs community according to Eniola & Entebang (2017). Research has found that SMEs play very importanty rolei in the economici developmenti of developing nations (Abor and Quartey, 2010; Alhassan, 2017; iDorasamy, iMarimuthu, Jayabalan, iRaman, and iKaliannan, 2010). According to Abor & Quartey (2010), one of the main supporting pillars of the Ghanaian economy is the activities of SMEs whichs constituted about 90 percent of privatei sectori businessesi and employs about 50 percent of the entire labour force in Ghana (BASTIAT Ghana Report, 2014). The statistics above shows how important the SMEs sector is to the Ghanaian economy and therefore the importance of financial literacy in this sector.
However, ini spited off thei many contributions of thei SME sector to the in Africa, particularly in Ghana, SMEs are still inundated with collapse and substandard performances. The Departmenti for Internationali Developmenti (DFID, 12008) studiedi financiali literacyi levelsi across the globe and found thati thei leveli financiali literacyi in African countries is lowi comparedi to otheri countries.
The study revealed that in seveni African countries, onlyi 50 percent of the adulti populationi have financial knowledge and skill and about 50 percent did noti usei bothi formali and informali financial productsi as onlyi one-third of the populationi of adults examined owned a bank account. According to iCarlson, iDabla-Norris, Saitoi & Shiy (2015),
a survey conducted by the World Bank in 20111 found thati nearly 301 percent off the adulti populationi in Africa makes usei of financiali servicesi which is lowi compared to 150% of the world average. Eniola & Entebang (2017) pointed out that about 85 percent of SMEs in Africa fail as a result of lacks of manageriali decisioni skills and lowi financial literacyi levels.
In Ghana, Adjei (2018) found low levelsi of financiali literacyi among smalli business ownersi and concluded that SME growth is dependent on the culture and financiali literacyi of the SME ownersi and managers.
The contribution of financial literacy in the success of businesses and economic development of states has increasingly caught the attention both developing and developed countries. Some countries have adopted a number of strategies to improve upon the financiali literacyi of its citizens overi thei pasti yearsi recognizing the importance of financial literacy in small businesses. For example in Ghana, the according to Eniola & Entebang (2017), the government in 2009 collaborated with international agencies and approved national strategy on financiali literacyi andi consumeri educationi for SME owners with the purpose of improving on the financial literacy rate in the country.
SMEs’ financial literacy has been assessed in a variety of ways by various scholars. To assess financial literacy among young entrepreneurs, Oseifuahi (2010) used financiali lattitude, financiali awareness, and financiali behavior. Again, to assess financiali literacyi amongi new microbusiness owners, Fatokii (2014) usedi financial iplanning, ianalysis and icontrol, ibookkeeping, understandingi of fundingi sources, businessi terms, financed and informationi skills, itechnology, and risk management (insurance). The failure of SMEs in Ghana is very high and it is important to establish whether financial literacy contributes to the performance of the existing SMEs particularly in the Ellembelle District. This study will apply financiali attitude, financiali knowledgei and financiali behave as in the case of Oseifuah (2010) to measure financial literacy among SMEs in the Ellembele District and establish its contributioni to thei performancei of SMEs.
Statement of the Problem
Surveys on financial literacy in Ghana have been inconsistent with the global trend. Most of these surveys have been focusing on either giving explanation on financiali literacyi levelsi (Anokye, 2017; Ansongi & iGyensare, 2012; Nunooii & IAndohi, 12012) or establishing a link between financial literacy and firm financial performance (Adomakoi & Danso, 2014).
Specifically in Ghana, apart from Nunooii & IAndohi (2012), all the abovei studiesi did not paid attention to the effects financial literacy have on SMEs. Nunoo and Andoh (2012) focusedi on the financiali literacyi levels of SME ownersi and assessed its effecti oni their demandi for financiali services. The authors concluded that, while SMEs owners’ financial literacy is low, and womeni are lessi financially literatei than men, financiali literacyi is importanti in explainingi how people use financiali services.
Thiss research goes beyond thati of Nunooi & Andohi (2012) to assess whetheri the importance of financiali literacyi of SME owners included the improvement of their firmi performancei in terms of igrowth.
It is interesting to note that Adomako & Danso (2014) studied the relationship betweeni financiali literacyi and performancei of firms in Ghana and concluded that financial literacy improves the performance of firms in Ghana.
SMEs were not included in their report, despite the fact that it was focused on Ghanaian businesses. In contrast to the conventional Returni on Equityi (ROE) usedi to measure profitabilityi by Adomako and Danso (2014) and other scholars, this analysis will not only concentrate on SMEs, but will use Return on Assets (ROA) as a SME success indicator.
Purposei of thei Study
The purpose of thisi studyi is to assess the influence of financiali literacyi of SME owners on their firm performancei in terms of growth.
Research Objectives
To achieve the purposes of the istudy, the study seeks ito;
- Determineithei financial literacy levels of SME owners in the Ellembelle District
- Assess the influenceiof financiali literacyi of SME owners on their firm performancei in the Ellembelle District
- Examine the challenges faced by SME owners Ellembelle District in acquiring financial knowledge and awareness
The studyi attempts to answery the followingi research iquestions;
- Whatiis the financial literacy leveli of SME ownersi in thei Ellembelle District?
- How does financial literacy of SMEs in the Ellembelle District influence their firm performance?
- What are the challenges faced by SME owners in the Ellembelle District in acquiring financial knowledge and awareness?
Statement of Hypothesis
H1: Financial literacy of SME owners influence firm performance
Significancei of thei Studyi
The findings of thiss studyi will add toi thei plethora of literature on financiali literacy of ISMEs ini Ghana. Researchers may use some of the information provided by the findings of the study to help in other research in similar subject area. As a result, researchers may use the study’s results as a starting point or a foundation for further studies in the same or similar field.
Again, in ipractice, thei findingsi of thisi studyi will help enhance thei understanding of SME financiali knowledge, attitude and awareness. This will enable SME owners acquire or enhance the necessary financial knowledge and awareness. The findingsi of this studyi will be helpful to businessi owners, managers as well as policy makers in the area of financial education. For policy makers, the findings of the study will assist policy makers to put in place strategies that will enhance financial knowledge education for SME owners
Delimitation
The study will not be extended to other types of businesses apart from SMEs. The study will also be limited to only SMEs in the Ellembelle District in the Central Region that are registered to do legitimate businesses. The study will not explore regional and district or municipal variations in Ghana and therefore the findings are only generalized for SMEs within the Ellembelle District.
Limitations
This research is a descriptive research that will employ quantitative method. Since the study is limited to only registered SMEs within the Ellembelle District, the result may not be used to generalize for all SMEs outside the District because of the district and regional variations
Organisationi of thei Study
