The relationship between financial literacy and financial access among SMES in the Ekurhuleni municipality

Abstract

Orientation: Among the numerous factors affecting small and medium enterprises’ (SMEs) ability to access funding, financial literacy or the lack thereof continues to rank high. The below-average levels of financial literacy among entrepreneurs inevitably restrict their access to finance, thereby adding to the already soaring rate of small business failure.

Research purpose: The main research objective of this article is to determine the underlying financial literacy-financial access relationship among SMEs in the Ekurhuleni Metropolitan Municipality in South Africa.

Motivation of the study: Understanding the relationship between financial literacy and financial access among small businesses is imperative as they are key players in economic development. Empirical literature outlining this relationship is sparse. Therefore, the study made an original empirical contribution to the financial literacy-financial access nexus in the metropolitan.

Research design, approach and method: A quantitative descriptive research design was followed. The survey method was used to gather data, where structured questionnaires were distributed to the respondents. The study considered a targeted population of 5609 registered SMEs in Ekurhuleni with a sample size of 384 prospective participants. A total of 310 responses were obtained from the owners and managers of SMEs in the municipality. The Statistical Package for Social Sciences was used to compute all statitical analyses for the study. Descriptive statistics were used to establish the SMEs’ financial literacy and financial access relationship. Data were analysed using factor analysis, regression analysis and correlation analysis.

Main findings: Entrepreneurs in Ekurhuleni were found to have a limited understanding of basic financial concepts implying low levels of financial knowledge. Additionally, the study established that financial access was significantly challenging for most SMEs. The findings further revealed a positive relationship between financial literacy and financial access.

Practical managerial/ implications: The knowledge from this article may assist entrepreneurs and financial institutions in bridging the financial literacy gap, thereby increasing the likelihood of accessing funding by SMEs. It may also assist in influencing the development and implementation of micro and macroeconomics policies to raise financial literacy levels and leniency from financing sources towards SMEs.