Financial Risk Management Literacy and Its Effect on Financial Sustainability: Insights from Micro, Small and Medium Enterprises in Kakamega County
DOI:
https://doi.org/10.53819/81018102t7075Abstract
The objective of the study was to investigate how financial risk management literacy affects financial sustainability of MSMEs in Kakamega County. The study was anchored on prospect theory. Descriptive survey research design was adopted in the study in which the population comprised of 645 managers and proprietors of MSMEs in the county drawn from trading, manufacturing, distribution and service sectors in the county. The study sample comprised of 247 proprietors selected using stratified sampling technique. Primary data collected using structured questionnaires was utilised in the study. Collected data was analysed using SPSS version 26. Both descriptive statistics and inferential analysis were used in data analysis. Descriptive statistics included mean score and standard deviation. Inferential analysis included Pearson's correlation coefficient and multiple regression analysis. The coefficient of determination (R²), F-statistic, beta coefficient and p-values were used in interpreting results. Results showed that MSMEs demonstrated only modest levels of financial risk management literacy and MSMEs achieved financial sustainability only to a limited extent, as many struggled with profitability, cash flow adequacy, and revenue growth. Correlation analysis results showed that financial risk management literacy showed a strong and positive correlation with financial sustainability. Regression analysis confirmed that financial risk management literacy had a positive and statistically significant effect on financial sustainability. It was thus concluded that financial risk management literacy had a positive and statistically significant effect on financial sustainability of MSMEs in Kakamega County.
Key Words: Financial Risk Management Literacy; Financial Sustainability; Micro, Small and Medium Enterprises
References
Aduda, J., & Ochieng, F. (2019). Financial Literacy and Access to Finance among Small and Medium-Sized Enterprises in Kenya. Journal of Finance and Investment Analysis, 8(1), 1-15.
Arinda, C. (2019). Financial literacy and financial performance of small and medium sized enterprises in Uganda (Doctoral dissertation, Kyambogo University).
Central Bank of Kenya (2024). Annual report, 2024. Retrieved from: https://www.centralbank.go.ke/uploads/cbk_annual_reports/1617898542_2024%20Annual%20Report.pdf
Cruz, M., & Hernandez Uriz, Z. (2022). Entrepreneurship ecosystems and MSMES in Kenya. Washington, DC: World Bank.
Ebert, S., & Karehnke, P. (2021). Skewness preferences in choice under risk. Available at SSRN 3480519.
Fauzi, A. A., & Sheng, M. L. (2022). The digitalization of micro, small, and medium-sized enterprises (MSMEs): An institutional theory perspective. Journal of Small Business Management, 60(6), 1288-1313.
Hair Jr, J., Page, M., & Brunsveld, N. (2019). Essentials of business research methods. Routledge.
Hogarth, J. M., Beverly, S. G., & Hilgert, M. (2023). Patterns of financial behaviours: Implications for community educators and policymakers (Discussion draft).
Ilbahar, E., Kahraman, C., & Cebi, S. (2022). Risk assessment of renewable energy investments: A modified failure mode and effect analysis based on prospect theory and intuitionistic fuzzy AHP. Energy, 239, 121907.
Ivanova, A. S., Holionko, N. G., Tverdushka, T. B., Olejarz, T., & Yakymchuk, A. Y. (2019). The strategic management in terms of an enterprise’s technological development. Journal of Competitiveness, 11(4), 403-431.
Kawira, K. D. (2021). The effect of product and service innovation on the performance of micro, small and medium enterprises in Kenya. Journal of Marketing and Communication, 4(1), 1-16.
Kenya National Bureau of Statistics (KNBS) (2024). Kenya Vital Statistics Report 2024. https://www.knbs.or.ke/reports/kenya-vital-statistics-report-2024/
Makanyeza, C., & Chikoko, L. (2020). Financial Literacy and Small Business Performance: The Mediating Role of Financial Management Practices. Journal of Financial Reporting and Accounting, 6(3), 67-75.
Masdupi, E., Rasyid, R., & Darni, M. O. (2024). Financial literacy and sustainability in SMEs: Do financial risk attitude, access to finance, and organizational risk-taking tolerance mediate? Asian Economic and Financial Review, 14(1), 43-58.
Mogaji, B. S., & Daniel, S. O. (2023). Financial Literacy Impact and the Micro and Medium Scale Enterprises Profitability Owned by Students in Nasarawa State. Lafia Journal of Economics and Management Sciences, 8, 284-301.
Mudzingiri, C. (2024). The Effect of Financial Literacy Confidence on Financial Risk Preference Confidence. A Lab Experiment Approach. Sage Open, 14(2). https://doi.org/10.1177/21582440241253911
Mutisya, P. M. (2023, April). Contributions of small and medium enterprises (SMEs) toward achievement of sustainable development goals in Kenya: a systematic review of literature. In International Conference on Current Business Issues in African Countries (pp. 175-186). Cham: Springer Nature Switzerland.
Njoki, D. M. (2024). Effect of Financial Literacy on The Growth of Micro and Small Enterprises in Kenya. African Journal of Commercial Studies, 4(1), 31-37.
Ogonji, V. (2024). Financial literacy and financial performance of small and medium-scale enterprises in Kajiado county, Kenya. (Unpublished doctoral dissertation), Cuk.
Organisation for Economic Co-operation and Development (OECD). (2021). Financial Literacy. Retrieved from https://www.oecd.org/financial/education/financial-education-in-schools.htm
Osinde, S. K., Iravo, M., Munene, C., & Omayio, D. (2013). Effect of Business Development Services on the Performance of Small Scale Enterpreneurs in Kenya. A Survey of Small-Scale Enterprises in Kenya.
Prietzel, T. T. (2020). The effect of emotion on risky decision making in the context of prospect theory: a comprehensive literature review. Management Review Quarterly, 70(3), 313-353.
Priyantoro, P., Ratnawati, K., & Aisjah, S. (2023). The effect of financial literacy on business performance through mediation of financial access and financial risk attitude. International Journal of Research in Business and Social Science (2147-4478), 12(9), 275-287.
Song, C. L., Pan, D., Ayub, A., & Cai, B. (2023). The interplay between financial literacy, financial risk tolerance, and financial behaviour: the moderator effect of emotional intelligence. Psychology Research and Behavior Management, 3(1), 535-548.
Wafula, W. N., Rono, L., & Tuwey, J. (2024). Financial Risk Attitude, Environmental Dynamism and Financial Sustainability of Small and Medium Enterprises in Nairobi, Kenya. Journal of Finance and Accounting, 8(9), 25–39. https://doi.org/10.53819/81018102t2440
Wahab, N. A., & Bunyamin, M. (2023). The Impact of Financial Literacy on Financial Risk Tolerance: Mediating Role of Financial Behavior. Global Business & Management Research, 15(4), 129-157.
Walliman, N. (2021). Research methods: The basics. Routledge.
World Bank. (2024). World Bank SME finance: Improving SMEs’ access to finance and finding innovative solutions to unlock sources of capital. The World Bank. https://www.worldbank.org/en/topic/smefinance
