The Role of Financial Literacy in The Financial Performance of MSMEs

Dewi Anjani ()
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Dewi Anjani: Universitas Sarjanawiyata Tamansiswa, Master of Management

A chapter in Proceedings of the 1st International Conference on Business, Economic, and Social Sustainability (ICOBES 2025), 2026, pp 118-130 from Springer

Abstract: Abstract This exploratory study delves into the critical role of financial literacy in influencing SME performance from a sustainable economic resilience perspective in emerging markets. Drawing on the knowledge-based view (KBV), theory of planned behavior, and resource-based theory, financial literacy is theorized as a strategic knowledge asset enabling SME owners and managers to make confident financial decisions, manage risks, and allocate resources efficiently. The research employs a meta-analysis of studies from 2020-2024, including Yakob et al. (2021), Kulathunga et al. (2020), Hanasri et al. (2023), Astari and Candraningrat (2022), Wijaya et al. (2023), and Pratama et al. (2024). A mixed-methods approach analyzes quantitative survey and questionnaire data from over 500 SME stakeholders across diverse national contexts using advanced statistical techniques such as partial least squares-structural equation modeling (PLS-SEM) and regression analysis. Key findings reveal that higher financial literacy levels are significantly associated with improved financial performance indicators, including return on assets (ROA), sales growth, and efficient liability management. Financial literacy moderates the relationship between external factors like fintech adoption, microfinance access, and digital transformation with SME outcomes, amplifying technological disruptions while mitigating economic shocks. The impact of ICT literacy is context-specific, more pronounced in urban SMEs than rural ones, and influenced by demographic factors such as education and experience. Theoretical contributions include operationalizing KBV by positioning financial literacy as a dynamic capability for competitive advantage. Practical implications advocate for government-sponsored financial education programs, fintech training workshops, and policy frameworks to foster inclusive financial ecosystems. Limitations, such as self-report bias and regional specificity, suggest avenues for future research, including longitudinal studies, cross-cultural comparisons, and causality experiments. Overall, enhancing financial literacy empowers SMEs to navigate volatile economic terrains, promoting economic development and poverty reduction in emerging countries.

Keywords: Financial literacy; Financial performance; MSME’s (search for similar items in EconPapers)
Date: 2026
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DOI: 10.2991/978-94-6239-626-5_9

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