Financial literacy and financial performance of small and medium enterprises in Mombasa County, Kenya.
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Date
2025-11
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Publisher
Kenyatta University
Abstract
Small and Medium-sized Enterprises (SMEs) play a vital role in Kenya’s economic development by providing employment and fostering innovation. However, despite their significance, many SMEs in Mombasa County experience low profitability and short lifespans, with most collapsing within five years of establishment. This challenge has been attributed to limited financial literacy among proprietors, particularly in the areas of debt management, bookkeeping, tax administration, and cash flow management. The present study sought to examine the effects of financial literacy on the financial performance of SMEs in Mombasa County, Kenya. Specifically, the study aimed to: determine the effect of debt management skills, bookkeeping skills, tax management skills, and cash flow management skills on SME financial performance. The study adopted a descriptive research design and utilized primary data collected through structured questionnaires. A sample size of 132 SMEs was drawn from a population of 52,245 registered enterprises using stratified random sampling to ensure sectoral representation. Data analysis was conducted using Statistical Package for Social Sciences (SPSS version 29), employing both descriptive and inferential statistics. The hypotheses were tested at a 0.05 significance level. Findings revealed that debt management skills, bookkeeping skills, and tax management skills had a statistically significant positive effect on the financial performance of SMEs, while cash flow management skills showed no significant effect. Interestingly, SMEs that regularly updated financial records and practiced structured debt management reported higher net profit margins and better liquidity positions than those that did not. The results confirmed that financial literacy is a critical determinant of SME profitability and sustainability
Description
A research project submitted to the school of business, economics and tourism in partial fulfillment of the requirements for the award of degree in master of business administration (finance option) of kenyatta university, November 2025
Supervisor:
Dr. Peter Ng’ang’a