International Journal of Research and Innovation in Social Science (IJRISS) | Volume III, Issue X, October 2019 | ISSN 2454–6186

Financial Literacy and Financial Performance of Small and Medium Enterprises in Uganda

James Kizza

Department of Economics and Statistics, Kyambogo University, Uganda

Abstract:- Financial literacy is the ability to use knowledge and skills to manage one’s financial resources effectively for life time financial security (Mandell, 1997). When applied to business enterprises, financial literacy is aimed at ensuring sustainability of business by enabling the business utilize the financial resources effectively. This study investigated the relationship between Financial Literacy and Financial Performance of Small and Medium Enterprises (SMEs) using Kikuubo Shopping Centre –Kampala as a case study. The study was prompted by the high mortality of SMEs within their year of inauguration (Nangoli et al, 2013). The study objectives were: To investigate the relationship between financial knowledge and financial performance of SMEs; to establish the relationship between financial skills and financial performance of SMEs; to investigate the relationship between financial experience and financial performance of SMEs. Financial Performance was measured in terms of: Business survival, profitability and growth. The study employed a co relational study design and a total of 160 respondents from SMEs owners and employees took part in the study. Data were collected using questionnaires and interview guides and both descriptive and inferential statistics were applied to the collected data. The study established that: a positive moderate and significant relationship exists (r=0.4799, p<0.05) between financial Knowledge and financial performance of SMEs; a positive strong and significant relationship exists (r=0.6663,p<0.05) between financial skills and financial performance of SMEs and a positive strong and significant relationship exists (r=0.6508,p<0.05) between financial experience and financial performance of SMEs. It was thus concluded that financial literacy is very key in promoting the financial performance of SMEs. The study recommends that financial literacy programs be incorporated in the various engagements of stakeholders through workshops and seminars with SMEs owners; and encouraging partnerships with financial institutions to provide customized financial literacy education to SMEs.

Key words: Financial Literacy; Financial Performance; Small and Medium Enterprises; Knowledge based economy

JEL codes: G2, G21, M1, M13