Effect of Financial Literacy on Profitability of Small Scale Enterprises in Kibuye Open Air Market, Kisumu County, Kenya
Abstract/ Overview
Financial literacy occupies a center stage in the quest to achieve an overall degree of
business performance and profit making in an organization. Thus, financial literacy or
lack of it plays an important role in the success or failure of many businesses. While
many studies have provided documentary evidence suggesting that financial literacy
education is effective, there's little evidence to show that financial literacy is an important
predictor of financial behavior in the developing world. Even though entrepreneurs in
Kibuye market have some financial knowledge regarding financial management in their
. businesses; they still register losses, which then raise the concern of the use of knowledge
they have acquired. Research findings in Kenya have shown that over 50% of small scale
entrepreneurs continue to have deteriorating performance with three in every five small
scale enterprises failing within months of establishment. The purpose of the study was to
find the effect of financial literacy on the profitability on small scale enterprises in
Kisumu County, Kenya. The specific objectives were:· the extent to which financial
literacy is adopted by the small scale enterprises, the effect of keeping accounting and
financial records on the profitability of the small scale enterprises, the frequency of access
to bank credit -facilities on small scale enterprises and the effect of accessibility of bank
credit facilities by small scale enterprises. Cross sectional survey research design was
used in this study. The study was carried out in Kibuye market, Kisumu County; Kenya.
Target population was 5000 small scale enterprises. A sample size of356 was determined
using simple random sampling technique, Data were collected using structured
questionnaire. Validity of instrument was established by a team of experts in the area of
the study while reliability of the instrument determined using Cronbach alpha coefficient
method. Data were analyzed using descriptive statistics and inferential statistics and
presented in statistical tables, bar graphs and pie charts. The results revealed that adoption
of financial knowledge and access to financial services both have a positive and
significant influence on the profitability (~""0.201, p=0.38; ~=0.096, p=0.048)
respectively. The findings also revealed that keeping financial records and frequency of
access to financial Services also have a positive influence on the profitability (~=0.012,.
p=0.979; ~=0.024, p=0.827) respectively. The findings conclude that financial literacy
influences profitability in small scale enterprises. The findings are expected to contribute
in the policy formulation in the industry and consider the appropriate training methods in
financial training to the small business owners in Kenya.