FINANCIAL LITERACY SKILLS AND SURVIVAL OF SMALL AND MEDIUM ENTERPRISES IN OSUN STATE, NIGERIA

Abstract

Small and Medium Enterprises (SMEs) are the backbone/building blocks of the global economy in combating poverty, unemployment, and improving the standard of living. Although, they have been demonstrated to thrive in the face of harsh economic situations, reports indicated that SMEs, including those in Osun State, have low survival rate. Previous studies have focused largely on roles and impacts of SMEs on the economy, with little emphasis on how Financial Literacy Skills (FLS) including financial decision-making, saving culture, and credit/loan accessibility influence the survival of SMEs. The study, therefore, examined the extent to which financial literacy skills predicted the survival of SMEs in Osun State, Nigeria. Prospect, Modern Portfolio and Dual-Process theories were used as framework, while the survey design was adopted. The 980 SMEs registered in Osun State were enumerated and stratified into micro, small and medium enterprises. The probability proportionate to size method was used to select 25% of the SMEs (micro=185; small=53; medium=12). The instruments used were Financial Literacy Skills (Financial decision-making, r=0.85; money management, r=0.87; budgeting ability, r=0.67; saving culture, r=0.76; credit/loan accessibility, r=0.81 and investment knowledge and ability, r=0.73) and SMEs Survival (r=0.83) questionnaires. Key informant interviews were held with one officer each of the Bank of Industry, SMEs’ Development Agency of Nigeria and the directors of Commerce, Industries, Cooperatives and Empowerment in the state, while six sessions of in-depth interview were conducted with selected entrepreneurs. Quantitative data were analysed using descriptive statistics, Pearson product moment correlation and Multiple regression at 0.05 level of significance, while qualitative data were content-analysed. Participants’ age was 38± 2 years while most of them were males (64.5%); sole proprietors (61.1%) with highest qualification being secondary school certificate (35.5%). Entrepreneurs showed knowledge of financial literacy skills with money management (97.0%), budgeting ability (82.0%), credit/loan accessibility (94.5%), financial decision-making (96.0%), saving culture (94.0%) and investment knowledge (94.0%). Financial decision-making (r=0.66), money management (r=0.71), saving culture (r=0.63), budgeting ability (r=0.68), credit or loan accessibility (r=0.57) and investment knowledge skills (r=0.66) had significant positive relationships with SMEs’ survival. There was a significant joint prediction of financial literacy skills on SMEs’ survival (F (6297) = 0.77; R 2=.59), accounting for 59.0% of its variance. Money management (β=0.56), budgeting ability (β=0.42) investment knowledge (β=0.24) and credit/loan accessibility (β=0.22) made relative contributions to SMEs’ survival, while financial decision-making and saving culture did not. There were no differences in the acquisition and utilisation of FLS among the entrepreneurs based on their demographic profiles. The economic situation in the country was observed to affect entrepreneurs’ financial decisions and alsos inhibited their saving culture. Money management, budgeting ability and credit accessibility skills predicted the survival of Small and Medium Enterprises in Osun State, Nigeria. These factors should be considered for the survival of SMEs.