Moderating Effect of Financial Literacy on the Relationship between Loan Characteristics and Financial Performance of Smes in Bungoma County Kenya
Loading...
Date
2023
Authors
Wakhungu, Mathew Maruti
Mbuva, Geoffrey
Journal Title
Journal ISSN
Volume Title
Publisher
Full Length Research
Abstract
The so called small and medium sized firms
has proven to positively contribute to
social-economic threats arising from
poverty, increased job opportunities and
economic upscaling. Even with such a
remarkable support, these small firms still
have challenges on their future survival due
to financial accessibility levels and
financial performance deterioration. The
main goal of the current study was to assess
the extent to which financial literacy
moderated the association between loan
characteristics (composite) and financial
performance of SMEs in Bungoma County
Kenya. More specifically, the study aim
was; to assess the moderating effect of
financial literacy on the relationship
between loan characteristics and financial
performance of SMEs in Bungoma County
Kenya. The study was underpinned by the
following four theories, namely; credit
rationing theory, information asymmetry
theory and financial literacy theory. The
study used explanatory research design.
The 4,264 SMEs operating in Bungoma
County represent the study population out
of which a sample size of 366 SMEs firms
were determined using Yamane formula of
1967. The sample elements were selected
through stratified random and convenience
sampling technique. To collect data, a drop
and pick approach was utilized whereby all
the structured questionnaires were
distributed to research participants. Where
this approach was not suitable, the
researcher considered use of Covid-19
Pandemic protocols. Research findings
portrayed that financial literacy had
statistically significant moderating effect
on the relationship between loan
characteristics and financial performance of
financial performance of SMEs in
Bungoma County, Kenya for there was
both moderator and interaction term
significant influence. Policymakers need to
establish lending-borrowing policies which
are friendly to the SMEs so as to
accommodate the smaller firms such as
micro-small. Investment in capacity
building by financial institutions need to be
given pre-eminence for the acquired skills
by the loan borrowers aid in financial
sustainability of the businesses they run due
to improved financial performance.
Description
Article
Keywords
Financial performance, Nature of Loan Collateral, Loan repayment period, loan repayment mode, Loan Characteristics
Citation
Wakhungu, M. M., & Mbuva, G. (2023). Moderating effect of financial literacy on the relationship between loan characteristics and financial performance of SME’s in Bungoma County, Kenya. International Academic Journal of Economics and Finance, 3 (8), 337, 354, 2.