The use of financial literacy concepts by entrepreneurs in the small and medium enterprise sector in Mpumalanga Province, South Africa

Abstract

Financial literacy is one of the key factors that impact on the success of small and medium enterprises (SMEs) globally. The low levels of financial literacy of entrepreneurs influence the SMEs ability to grow and achieve sustainable results. The objective of this study is to understand the extent to which entrepreneurs in the SME sector pursue the financial literacy concepts, namely, budgeting, investing and borrowing in managing their business finances. The study also aims to establish the relationship between the use of financial literacy concepts and the performance of the SMEs. This study was quantitative and descriptive in nature. The data was collected through questionnaires during face to face structured interviews. A total of 53 entrepreneurs from the Gert Sibande and the Emalahleni municipality districts in Mpumalanga Province participated in this study. The results of the study indicated that most of the SMEs did pursue all the three financial literacy concepts in managing their business finances. Furthermore, the study revealed that entrepreneurs lacked the knowledge regarding other sources of capital such as venture capitalist funds and government agencies. The study also provided evidence of a positive relationship between the use of financial literacy concepts and the economic success of SMEs. This study recommends that key stakeholders such as government, private sector and academics use the outcomes of this study to develop educational programmes aimed at improving the financial literacy levels of entrepreneurs in the SME sector. This study focused on the SMEs in the mining industry, sampling for future studies could be broadened to include other sectors such as manufacturing, construction, tourism, etc.