An assessment of the role of financial

WORLD ACADEMIC JOURNAL OF BUSINESS & APPLIED SCIENCES-MARCH-SEPTEMBER 2013 EDITION

Journal of Economics & Finance (JEF)

SEPTEMBER 2013 VOL.1, No.7

An Assessment of the role of financial literacy on Performance of
Small and Micro Enterprises: Case of Equity Group Foundation
Training Program on SMES in Njoro district, Kenya
Jacqueline Siekei (Corresponding author), Juma Wagoki & Aquilars Kalio
Jomo Kenyatta University of Agriculture and Technology, Kenya
Accepted 28 September 2013
Abstract
The purpose of this study was to assess the effects of the financial literacy education on performance of small
and micro enterprises in Njoro District where the program was implemented since 2011. The study investigated
the financial literacy skills imparted, and their role on performance of small scale enterprises. Specific objectives
of the study were: to establish how book keeping skills influence performance of MSEs under that EGF financial
literacy programme in Njoro District, to establish the effects of credit management skills on performance of
SMEs under EGF financial literacy programme in Njoro District and to find out how budgeting skills affect
performance of SMEs under that EGF financial literacy programme in Njoro District. Descriptive survey
research design was used to guide the study. The target population for the study was 467 beneficiaries of equity
group foundation project in Njoro District. A sample size of 82 was selected random sampling technique.
Primary data was obtained using questionnaires administered to the selected program beneficiaries. Data
collected was then organized, coded and entered in the computer for analysis. Analysis was done using frequency
counts, percentages, means and standard deviation, t-test was used to analyses the difference in performance
before and after training. The study found out that: the program emphasized on budgeting, financial analysis,
credit management and book keeping skills; indeed there was a significant improvement in revenue performance
of small enterprises whose managers had attended the financial literacy programme. Credit management skills
obtained through the financial literacy programme enhanced performance through acquisition of credit financing,
and management of loan portfolios to ensure that loan liability was minimized and interest expenses minimized.
Budgeting skills significant roles in growing sales, profits and ensuring smooth running of the business. The
impact of this programme is evident in enhancing business performance. The government should therefore fund
the mainstreaming financial literacy training programmes throughout the country as a strategy for enhancing
small and micro enterprise performance.
Key Words: The role of financial literacy, Performance of Small and Micro Enterprises, Equity Group
Foundation Training Program, SMES, Njoro district
1. Introduction
Micro Small and Medium Enterprises (MSMEs) form more than 99% of all enterprises in the world (Capital
Markets Authority, 2010). Small and Micro Enterprises (SMEs) allow the rural poor, including some of the
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most marginalized and vulnerable people such as rural women, youth, and the landless to diversify their
incomes, create new sources of economic growth and generate additional employment (including
self-employment) in rural areas. The same strata may also be reached through SME support to small-scale local
entrepreneurs, whose business expansion can create new jobs for the rural poor (IFAD, 2008).
Therefore the global economy is heavily dependent on the success of the MSME sector. The significance of
Kenya’s micro and small enterprises (SME) activity in developing Kenya’s economy has continued to grow since
the sector was first brought to the limelight by the International Labour Organization (1972). ILO provided the
basis for the study of MSE in Kenya under the informal sector. It is now widely recognized that the promotion of
the SME sector is a viable and dynamic strategy for achieving national goals, including employment creation,
poverty alleviation and the balanced development between sectors and sub-sectors. The findings of the 1993
SME Baseline Survey underscored the important role that SMEs play in Kenya’s development process,
particularly in the context of generating employment and income opportunities for majority of poor people
throughout the country.
Indeed, the MSE sector provides employment for substantially more people than does the formal sector. It is
estimated that there are 7.5 million SMEs in Kenya, providing employment and income generation opportunities
to low income sectors of the economy (CMA, 2010). The sector’s contribution to the Gross Domestic Product
(GDP) has also grown from 13.8 per cent in 1993 to about 40 per cent in 2008 and the sector continues to grown
to date. The latest Economic Survey (2012) indicates that the informal sector which comprises of the SMEs has
contributed 80.8 per cent of total employment created (KNBS, 2012). The potential associated with the SME
sector has been positively adopted by the government and other development partners in economic development,
increasing wealth creation and fight against poverty and in employment creation.
The economic pillar of Kenya’s Vision 2030 identifies SME development as a key strategy to propelling the
country to a middle income economy by the year 2030 through equity and poverty elimination to reduce the
number of people living in absolute poverty to the tiniest proportion of the total population. Other development
involved includes the United States Agency for International Development, International Fund for Agricultural
development (IFAD), Germany Technical Institution (GTZ), commercial banks, and Microfinance institutions.
In order to overcome some of the constraints associated with financial management in the SME sector, the
government and other relevant stakeholders have designed programmes and policies that are market driven and
market non-distorting to support SMEs. Government has, for example, created stable macroeconomic conditions,
liberalized the economy, and encouraged the growth of micro-financing business. The SME Act (2011) was also
enacted to guide especially in the provision of credit, and capacity development for micro small and medium
enterprises in the country going forward to attaining vision 2030 (Republic of Kenya, 2012)
In response to the financial challenges affecting micro and small enterprises, the Equity group foundation (EGF)
financial literacy program was born. Equity Group Foundation was founded in 2009 with its main purpose being
to develop and grow initiatives with significant social impact by harnessing Equity Group‘s banking capabilities
and capacities and through effective partnerships. EGF‘s overall goal was to transform the socio-economic status
of 50 million people in Africa over the next five years.
One of these initiatives by the EGF is to provide financial education and entrepreneurship training to low
income people groups across the country. Equity Bank has been providing financial education to youth and
women micro entrepreneurs in their Group Lending Program (GLP) thereby mainstreaming it to cover groups
that were not part of the group lending programme (Equity group Foundation, 2009).
Financial literacy provides is knowledge and understanding of financial concepts and the skills, motivation
and confidence to apply such knowledge and understanding in order to make effective decisions across a range
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of financial contexts and to improve the financial well-being of MSEs (Hogarth, 2002). The programme has been
implemented since 2009 providing basic financial information with a view to enabling them address the financial
challenges, provide a platform for enterprise performance, growth, and sustainability.
Micro, Small and Medium enterprises form the backbone of global economy as they form 99% of all the
enterprises in the world (Capital Markets Authority, 2010). In Kenya, MSEs contribute over 80% of the country’s
employment and over 40% of the country’s GDP (KNBS, 2012). The sector, however, is characterized by a
number of challenges related to access to financial resources which translate to impediments in enterprise growth.
Despite the role played by the sector, it been characterized by a number of challenges. Wanjohi (2011) cites lack
of adequate business skills as a major challenge in the development and growth of Micro and small enterprises in
Kenya which is mainly attributed to low levels of education. The CMA (2010) has also identified that SMEs in
Kenya suffer from constraints that lower their resilience to risk and prevent them from growing and attaining
economies of scale. Challenges associated with access to financial resources are constrained by both internal and
external factors.
Internally, most SMEs lack creditworthiness and management capacity, so they have trouble securing funds
for their business activities such as procuring raw materials and products, and investing in plant and equipment.
From the external perspective, SMEs are regarded as insecure and costly businesses to deal with because they
lack required collateral and have the capacity to absorb only small amount of funds from financial institutions.
So they are rationed out in their access to credit because of high intermediation costs, including the cost of
monitoring and enforcement of loan contracts.
A number of initiatives have also been advanced by the government, NGOs, and the private sector aiming at
increasing access to affordable credit, and financial management to enable MSEs efficiently manage finances in
their businesses. However, it is not clear whether these initiatives on financial literacy education have translated
to better management of finances among MSEs, improved enterprise performance and improved access to loan
capital. The EGF financial literacy program is relatively new and its effects need to be examined. In light of this,
the current study seeks to assess the effects of the financial literacy education on access to credit by MSEs
trained under the equity group foundation financial literacy program in Njoro District.
The general objective of the study was to assess the role of the financial literacy education on performance of
SMEs under the equity group foundation financial literacy program in Njoro District.
The study was guided by the following specific objectives:
a) To establish how book keeping skills influence perfomance of MSEs under that EGF financial literacy
programme in Njoro District.
b) To establish the effects of credit management skills on perfomance of SMEs under EGF financial literacy
programme in Njoro District .
c) To find out how budgeting skills affect perfomance of SMEs under that EGF financial literacy programme in
Njoro District.
2. Literature review
Financial Literacy Theory
Financial literacy theory argues that the behavior of people with a high level of financial literacy might
depend on the prevalence of the two thinking styles according to dual-process theories: intuition and cognition.
Dual-process theories (Evans 2008) embrace the idea that decisions can be driven by both intuitive and cognitive
processes. Dual-process theories have been studied and applied to many different fields, e.g., reasoning and
social cognition (Evans 2008).
Financial literacy remains an interesting issue in both developed and developing economies, and has elicited
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much interest in the recent past with the rapid change in the finance landscape. Atkinson and Messy (2005)
define financial literacy as the combination of consumers’/investors’ understanding of financial products and
concepts and their ability and confidence to appreciate financial risks and opportunities, to make informed
choices, to know where to go for help, and to take other effective actions to improve their financial well-being
(Miller et al., 2009). Financial literacy helps in empowering and educating investors so that they are
knowledgeable about finance in a way that is relevant to their business and enables them to use this knowledge to
evaluate products and make informed decisions. It is widely expected that greater financial knowledge would
help overcome recent difficulties in advanced credit markets. Financial literacy prepares investors for tough
financial times, through strategies that mitigate risk such as accumulating savings, diversifying assets, and
purchasing insurance.
Financial literacy facilitates the decision making processes such as payment of bills on time, proper debt
management which improves the credit worthiness of potential borrowers to support livelihoods, economic
growth, sound financial systems, and poverty reduction. It also provides greater control of one’s financial future,
more effective use of financial products and services, and reduced vulnerability to overzealous retailers or
fraudulent schemes. Facing an educated lot, financial regulators are forced to improve the efficiency and quality
of financial services. This is because financially literate investors create competitive pressures on financial
institutions to offer more appropriately priced and transparent services, by comparing options, asking the right
questions, and negotiating more effectively. Investors on their part are able to evaluate and compare financial
products, such as bank accounts, saving products, credit and loan options, payment instruments, investments,
insurance coverage, so as to make optimal decisions (Miller et al., 2009).
Greenspan (2002) argues that financial literacy helps to inculcate individuals with the financial knowledge
necessary to create household budgets, initiate savings plans, and make strategic investment decisions. Proper
application of that knowledge helps investors to meet their financial obligations through wise planning, and
resource allocation so as to derive maximum utility. Hilgert et al., (2003) asserts that financial knowledge
appears to be directly correlated with self-beneficial financial behavior.
Equity bank (2012) in an article dubbed Equity Bank steps up its Kshs 1 Billion bid to boost financial literacy
has details on a project carried out by Equity Group Foundation in conjunction with The MasterCard Foundation
that was started to impart personal and business finance skills to more than 1million Kenyans particularly the
youth. The training project dubbed Financial Knowledge for Africa (FIKA) exposes participants to basic
economic concepts and helps them to gain an understanding of how to use a range of financial services - such as
savings, insurance and credit products. The program builds their financial capacity through a comprehensive
12-week financial education program - covering budgeting, savings, debt management, financial negotiations
and banking services. This programme pioneered by Equity Group Foundation is aimed at ensuring that the
community appreciates the dynamics of finances particularly now that immense resources are being channeled to
youth, women and even SMEs.
PNB (2011), in a corporate social responsibility report on realizing the objective of achieving “financially
inclusive growth”, they say that the biggest challenge is improving financial literacy so that borrowers could take
informed decisions. Bank's extensive financial literacy programmes overcomes this problem by reaching
thousands of customers and small entrepreneurs. As per the RBI guidelines, each Lead Bank is expected to open
a Financial Literacy and Credit Counseling Centre (FLCCCs) in every district where it has lead responsibility.
Financial counseling through face-to-face interaction with interested individuals is provided at these centres.
Financial education imparted includes importance of responsible borrowing, financial planning and information
about various financial products and services. Besides, debt counseling is provided for amelioration of
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debt-related distress of any individual.
G20 Seoul Summit (2010) states that information asymmetry arising from SMEs’ lack of accounting records,
inadequate financial statements or business plans also makes it difficult for creditors to assess the
creditworthiness of potential SME proposals. As the lack of financial literacy, operational skills, including
accounting and finance and business planning represents formidable challenge for MSE borrowers, we have, on
August 1, 2012, advised banks to play a more proactive role in the affairs of their SME clients by providing them
with financial literacy and consultancy support. For this, banks could either separately set up special cells at their
branches, or vertically integrate this function in the Financial Literacy Centres (FLCs) set up by them, as per
their comparative advantage. We have also stated that the bank staff should be trained through customized
training programs to meet the specific needs of the sector.
Berry (2006) said that although the external environment presents some of the key challenges in SME
financing, such businesses’ internal resources must not be overlooked. Of these, perhaps the most important is
the knowledge and social capital that exists within each business. It is important to remember that while levels of
education often influence entrepreneurial ambition – with the more educated likely to have a higher desire to
start a business – this ambition does not translate to higher levels of education among the actual business owners,
as education improves their employment prospects (Zwan et al., 2010). In fact, formal enterprise or management
training is rare among business owners, creating a significant skills gap common in both developed and less
developed economies.
This skills gap invariably affects owners’ ability to obtain finance – from knowing how to present a business
plan and being able to navigate through the available financial products, to knowing how to apply business skills
and acumen to manage and develop their business with a strategic approach to its operations, and ultimately
finance. There is a significant role for the accountancy profession in addressing this challenge. Applying their
broad-based knowledge in accounting and business, accountants are perfectly placed to work with governments
and other relevant institutions, such as SME bodies, to provide financial literacy and management training for
owner-managers. ACCA already has a good track record in organizing its members to run financial clinics, and in
many part of the world this grassroots engagement is the most authentic and effective means by which the skills
of the SME sector can be improved. The Forum urges international organizations to work with national
governments to encourage much wider use of such initiatives to raise the level of skills, with a particular
emphasis on working with the existing SME intermediaries to enable reliable access to the sector.
George (2008) state that when clients borrow multiple loans from multiple sources, that is, MFIs and other
formal and informal providers, juggling repayment schedules, and making sure that the credit is used to its best
advantage adds a level of complexity that can be very challenging to manage. Under such circumstances, forward
looking financial strategies are necessary, and these require specific knowledge, skills and attitudes about
financial management. Here comes the role of financial education. Most people learn to manage personal and
household finances by trial and error. Financial education teaches the Knowledge, Skills and Attitudes (KSA)
that are required for adopting good money management practices associated with spending, earning, saving,
borrowing and investing money. Anticipated outcomes include changes in client behaviors and practices in
money management such as saving regularly, making a budget, and working towards a financial goal. The
changes lead to increased savings, reduced debt and less financial stress. The aim of the Financial Literacy is to
increase the members’ assets, reduce liabilities and therefore increase their net-worth.
Lack of business and management skills can magnify financial barriers for SMEs. Low levels of financial
literacy can prevent SMEs from adequately assessing and understanding different financing options, and from
navigating complex loan application procedures. Similarly, the fact that SMEs’ accounting and financial
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statements are often not transparent makes them risky borrowers and thus less attractive to lenders. Capacity
building of SMEs in terms of preparing financial statements and business plans, as well as improving their
financial literacy and management training, is shown to have positive impact on SME development. Furthermore,
strengthening the horizontal linkages with other SMEs and vertical linkages with larger firms would improve
SMEs’ market access. (Hogarth et al., 2002).
Book Keeping in SMEs
Many new business owners are daunted by the mere idea of bookkeeping and accounting. But in reality,
both are pretty simple. Bookkeeping and accounting share two basic goals: to keep track of income and expenses,
this improves chances of making a profit, and to collect the financial information necessary for filing various tax
returns. There is no requirement that records be kept in any particular way. As long as your records accurately
reflect the business’s income and expenses.
There is a requirement, however, that some businesses use a certain method of crediting their accounts: the
cash method or accrual method. Depending on the size of the business and amount of sales, one can create own
ledgers and reports, or rely on accounting (Williams et al., 1993). An accounting system records, retains and
reproduces financial information relating to financial transaction flows and financial position. Financial
transaction flows encompass primarily inflows on account of incomes and outflows on account of expenses.
Elements of financial position, including property, money received, or money spent, are assigned to one of the
primary groups i.e. assets, liabilities, and equity. Within these primary groups each distinctive asset, liability,
income and expense is represented by respective “account”. An account is simply a record of financial inflows
and outflows in relation to the respective asset, liability, income or expense. Income and expense accounts are
considered temporary accounts, since they represent only the inflows and outflows absorbed in the
financial-position elements on completion of the time period (Williams et al., 2008).
There are account types that include real accounts which represent physically tangible things in the real
world and certain intangible things not having any physical existence. Examples of tangible things are: plant and
machinery, furniture and fixtures, computers and information
Financial Analysis
SMEs are a large contributor to global economies and their importance is noted in every country. SMEs
make a substantial contribution to the economy in terms of job creation, GDP, investment and social welfare
(Nieman, 2006). According to the African Development Bank (2005), SMEs contribute more than 55% of total
employment and 22% of the Gross Domestic Product in South Africa. Since they are so important to the
economy, their creation is very important as it a positive move towards economic growth. However there is a
need to keep these SMEs in operation and avoid failure. Lack of skills has been a major challenge to the SMEs
(Smith and Perks, 2006) and skills acquisition through training can provide a long lasting solution to the survival
battle of the SMEs.
Due to various reasons, some SMEs end up closing down business at an early stage. This could result from
the view that the entrepreneur miscalculated the opportunity, and unforeseen threats that are too big for the
business to overturn, lack of essential information on running the business and lack of proper funding of the
business(Chimucheka and Rungani, 2011; Monk, 2000). There are a lot of other issues that may appear
insignificant when the business is launched but will overpowering the business at the end, and eventually leading
to its downfall. Seemingly there is a lot that needs to be done in all fields that may prevent the loss of jobs,
revenue and increase of poverty in the communities by preventing failure in the SMEs. Apart from the financial
problems that may affect the businesses, the input of the owner and the business skills (Smith and Perks, 2006)
are very important in keeping the business afloat. There is therefore a need for a study that provides a rigorous
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and systematic analysis of entrepreneurial and business skills and training needs in the Plastic Manufacturing
Industry in the Eastern Cape Province of South Africa.
The purpose of this study is to examine the important financial analysis skills including financial risks
management. This study will help new SMEs in the industry to be able to survive and keep growing finances,
thus benefiting the province in development, employment and the country in revenues. These skills do not only
promote business and manufacturing efficiency success but also efficiency and benefit the country at large.
Therefore, it is, of great importance to assess and specify success factors that promote efficiency and survival of
SMEs that could serve as benchmarks for emerging SMEs. It goes further to assess whether training can play
role in the acquisition of these skills by entrepreneurs.
Credit Management
Idowu (2010) claim that a major barrier to rapid development of the small and medium enterprises sector is
a shortage of both debt and equity financing. Accessing finance has been identified as a key element for small
and medium enterprises to succeed in their drive to build productive capacity, to compete, to create jobs and to
contribute to poverty alleviation in developing countries. Small business especially in Africa can rarely meet the
conditions set by financial institutions, which see small and medium enterprises as a risk because of poor
guarantees and lack of information about their ability to repay loans Idowu (2010). Without finance, small and
medium enterprises cannot acquire or absorb new technologies nor can they expand to compete in global markets
or even strike business linkages with larger firms Idowu (2010). According to Cork and Nisxon (2000), poor
management and accounting practices are hampering the ability of smaller enterprises to raise finance. This is
coupled with the fact that small businesses are mostly owned by individuals whose personal lifestyle may have
far reaching effects on the operations and sustainability of such businesses according to (Idowu, 2010).
Given the myriad of challenges faced by SMEs and the central role played by their managers, who are often
the owners of the business, having a sound credit management skills cannot be over emphasized. A number of
researchers such as García (2005) and Pansiri and Temtime (2008) have found that a lack of appropriate skills for
SME owner managers is one of the main causes of failure for SMEs. Fatoki and Odeyemi (2010a) define
managerial competencies as sets of skills, attitudes, behaviours and knowledge that contribute to the
effectiveness of an individual. According to these two authors, managerial skills play a key role in the success of
small enterprises as they determine its growth. Likewise, (Fatoki and Asah, 2011) point out that lack of
managerial skills, personal qualities and skills are major contributors to the failure of firms. Lack of managerial
competence reduces the ability to develop sound plans and strategies for effective management of SMEs. Fatoki
and Odeyemi (2010a) explain that managerial skills influence business planning as well as the ability of the firm
to obtain knowledge regarding sources of finance and means of obtaining it. As such, managerial skills do affect
access by new small firms to financing.
3. Methodology
Research Design
The research design adopted was a descriptive survey. This study sought to understand whether financial
literacy education translates to better finance management and access to credit for business expansion. It only
intended to analyze the opinions from financial literacy education beneficiaries solicited by use of questionnaires
before generalizing the findings.
Target Population
The study population for this study was all the 467 beneficiaries of equity group foundation through
financial literacy education. This district was chosen because currently it has a large number of beneficiaries
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some of whom have successfully undergone the literacy education while others are ongoing. The area also
encompasses enterprises from varied economic sectors such as agriculture, trading, manufacturing and even
microcredit schemes.
Sample and Sampling Technique
The sample size was 82 beneficiaries of EGF financial literacy program, in Njoro district. Stratified random
sampling technique was used in selecting respondents into the study sample. This was important especially in
ensuring equal representation of women owned, and youth owned enterprises. The three strata to be included are
the women owned enterprises, youth owned enterprises and the men owned enterprises.
Data Collection Instruments
The study relied on primary data obtained from SMEs owners. Their opinions were sought using structured
questionnaires. The questionnaire sought information on the financial literacy skills imparted to SME owners, the
level of application of these skills and their effects on financial performance of the business. All these were
contained in separate sections. Questionnaires were preferred in this study because they allow investigation with
an ease of accumulation of data in a highly economical way
Data Collection Procedure
In collecting data, the researcher first obtained an introductory letter from the Graduate school of Jomo
Kenyatta University of Agriculture and Technology, Nakuru. The researcher then sought permission from the
EGF financial literacy programme coordinator in Nakuru to seek guidance and introduction to the trainers and
programme beneficiaries. The researcher then personally paid a field pre-visit to the study site, Njoro District,
to familiarize with the study area. Sampling was then done and questionnaires administered to the selected
respondents.
Data Analysis
Data was analyzed using descriptive statistics such as frequency counts, percentages, means and standard
deviation. T-test analysis was then used to establish the difference in performance of businesses before and after
the training.
4. Findings
Summary of Findings
Book Keeping Skills in Performance of SMEs
The study established that, the book keeping skills acquired through the EGFFL programme were average in
all the skills explored. The skill that is mastered the most was in the general establishment of business records
followed by analysis to establish the business performance. On the other hand, the least rated skill acquired was
on the setting up of financial controls system from the record system majority and accuracy in transaction
recording, with slightly above half of the respondents indicating that they had implemented the book keeping
skills acquired. Again this could be an indicator of lack of practicability of the skills obtained or EGF and low
level of follow – up to ensure that the skills were well implemented. However those who implemented these
skills found some notable improvement in business performance resulting from improved ability to better track
of business events from the record systems.
Financial analysis skills in Performance of SMEs
After proper record system is put in place, businesses require proper analysis to ensure that business
performance is tracked on an ongoing process and that the business is on track, if not, informed decisions are
made. The general self rating on the financial analysis skills among the beneficiaries of EGFFL training was low
and this is evident in that, most rated themselves below average in all the financial analysis skills. The highest
rated skill was on the analysis of cash outflows, preparation of income statements, and statements of liabilities
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and assets of the business which essentially refer to balance sheets preparation.
The least was on filing of tax returns. This raises concerns especially in the current business world where
the government has implemented stringent measures on tax compliance and introduced taxes in all sectors of the
economy. Despite the provision for training on financial analysis which is a crucial skill in business, majority of
the trainees did not understand the concepts behind financial analysis, therefore could not translate them into full
use. Proper financial analysis enabled SMEs in Njoro to make accurate decisions that would help them grow
their business better. The ability to analyze the financial performance enables the business owner to make more
viable business decisions that enhance performance and growth of the business.
Credit management skills in Performance of SMEs
Various credit management concepts were taught at the EGFFL training programme. Key among them being
the calculations on interest rates, loan portfolio management and improving access to finance. On the side of
beneficiaries, they found rated themselves highly on the skills acquired on loan utilization and how to enhance
access bigger credit facilities and credit analysis and essential loan records management. However skills obtained
on calculation of loan interests and legal issues ranked low.
This implies that although the credit management skills offered through the EGFFL programme provides the
basic information on credit management, and omits essential credit management knowledge such as assessment
of interest rates. These have a longterm effects on the financial performance of these businesses. Also it can be
observed that the financial analysis skills could have focused more on individual finances and omitted business
finances.
The skills on credit management assisted SMEs acquire loan facilities for their businesses after the training.
Already, majority of the SMEs have obtained credit facilities from Micro credit schemes, micro finance
institutions and banks to boost their business finances. As a result of the credit management skills, SMEs have
acquired credit for the purchase of assets for their businesses. The credit management skills also assisted SMEs
to manage loan portfolios, cutting down the amount they paid as interest rates by which translated to better
profitability for their businesses.
Budgeting Skills Performance of SMEs
Budgeting skills were highly emphasized in all financial literacy training, and all beneficiaries had acquired
the skill. However, on the level of skill acquired, generally the beneficiaries rated themselves at an average.
Beneficiaries were key on acquiring skills on profit planning, planning for business financing and cash flow. The
moderately low level of budgeting skills imply that, although the skills are emphasized during the training, the
content may not be sufficient in handling the planning aspects in SMEs, or the focus was more on personal
budgeting rather than business. Budgeting skills acquired however played a key role in enhancing the
performance of SMEs. Majority of the beneficiaries identified that the budgeting skills assisted them in
increasing sales. They also assisted in growing their business profitability by providing a basis of establishing
performance targets. Budgeting also contributed towards ensuring smooth running of the business
Effects of the Financial Literacy Skills on Performance of SMEs
After attending the financial literacy programs, businesses earning revenues of Ksh 8999 and below
declined, while those earning Ksh 9,000 and above increased. For instance, before training, 45.2% earned Ksh
3000 – 5999 while after training, 19.2% earned the same amount of revenues. Before training 20.6% earned Ksh
12,000 and above while after training the number increased to 37.0%. Paired t-test was done on revenues
before training and revenues after training, to establish whether financial literacy training had any significant
impact. The test results are shown on the table below.

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Table 4.1: Paired Samples Test on revenues before and after financial literacy training
Paired Differences

Mean
Pair
1

Std.
Deviation

monthly revenues 0.56164 1.44324
after training Monthly revenues
before training

Std.
Error
Mean

95%
Confidence
Interval
of
the
Difference
Lower
Upper
T

df

Sig.
(2-tailed)

.16892

.22491

72

.001

.89838

3.325

The test results shows that there was a significant change in revenues with t(72) = 3.325, P < 0.01.
Revenues improved significantly after training. Therefore H0 is rejected and H1 adopted. Financial literacy
training led to a significant improvement in financial performance of SMEs especially on revenues.
5. Conclusion and recommendations
The study therefore makes the following conclusions: Financial literacy skills acquired through the EGF
contributed a lot in enhancing performance of SMEs who were part of the program. There is also a significant
improvement in revenues for SMEs whose owner managers attended the training. Although the level of skills
acquired in book keeping was not high, the skills obtained influenced performance of SMEs, by providing them
with mechanisms for tracking performance, and accurate decision making.
Financial analysis skills obtained was slightly lower perhaps due to the difficulty in financial concepts
underlying financial analysis in business. Proper financial; analysis enabled the SME owner managers to make
informed decisions on their business especially on growth strategies.
Credit management skills obtained through EGFFL played key roles in enhancing performance of SMEs through
facilitation to acquire credit financing, and management of loan portfolios to ensure that loan liability was
minimized and interest expenses minimized. Budgeting skills taught through financial literacy programmes also
played significant roles in growing sales, profits and ensuring smooth running of the business
Therefore the study recommends the following: Owing to the success of the EGF financial literacy training
programme, equity group foundation should mainstream the programme to enhance the financial literacy training
programme in geographical coverage since it plays a key role in enhancing performance and growth of SMEs
which are key drives to economic development in Kenya.
The design of financial literacy programme and the mode of delivery are not comprehensive enough. This
presents an impediment towards full mastery of the financial concepts for proper implementation. Therefore, the
financial concepts should be broken further, and more effective methodologies adopted in delivery.
The impact of this programme is evident in enhancing business performance. The geographical coverage of EGF
in implementing the programme may be limited by the financial capacity of the company as this is implemented
as a CSR activity. The government should therefore fund the mainstreaming financial literacy training
programmes throughout the country as a strategy for enhancing SME perfomance.

259


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