The relationship between access to finance and growth of SMEs in developing economies: financial literacy as a moderator

Abstract

The main purpose of this paper is to establish the moderating effect of financial literacy in the relationship between access to finance and growth of SMEs in developing economies. Thus, this study seeks to establish whether financial literacy moderates the relationship between access to finance and growth of SMEs in a developing economy like Uganda. Design/methodology/approach – Cross sectional research design was employed in the study and data were collected from 169 SMEs located in Jinja and Iganga central markets. ModGraph (Excel programme) was used to test for the moderating effect of financial literacy in the relationship between access to finance and growth of SMEs in developing economies. Findings – The findings reveal a positive and significant moderating effect of financial literacy in the relationship between access to finance and growth of SMEs in developing economies. In addition, financial literacy and access to finance also have significant and positive effects on growth of SMEs in developing economies. Research limitations/implications – The study collected data from only SMEs located in Uganda, and there is an opportunity to test this finding in other developing economies. Furthermore, the findings from the study are based on quantitative data collected through use of semi-structured questionnaires. Besides, the study was purely cross-sectional hence, ignoring the characteristics of SMEs, which could be investigated using longitudinal study design.