Mwaniki, Linda Nyambura2019-10-232019-10-232019-02http://ir-library.ku.ac.ke/handle/123456789/19879A Research Project Submitted to the School of Business in Partial Fulfillment of the Requirements for the Award of the Degree of Master of Business Administration (Finance Option) of Kenyatta UniversityDespite the significant contribution of Small and Medium Enterprises (SMEs) to the economy, SMEs have been faced by a number of issues affecting their growth. One of the issues relates to inadequate financial literacy which hinders their flexibility to diversify risk thus preventing them from growing and attaining economies of scale. Consequently, the growth of SMEs is inhibited in terms of liquidity and being unable to attend to their daily operations and investments commitments thus losing on business opportunities which makes it difficult to achieve their growth in terms of size and wealth accumulation. The general objective of the study was to establish the effects of financial literacy on growth of small and medium enterprises in Nyeri County, Kenya. The study aimed at determining the effect of debt management literacy, book keeping, budgeting skills and banking knowledge on growth of SMEs. The study was anchored on stages of growth theory, MAR knowledge spillover theory and dual process theory. The research design used was descriptive research design. The target population of the study was 841 SMEs. Stratified random sampling was used to select a sample of 168 SMEs. 168 questionnaires were dispatched with 132 being filled and returned yielding a response rate of 78.6%. The study found that debt management literacy and book keeping literacy have a positive and significant effect on growth of SMEs studied with p value of 0.001 and 0.000 respectively. Budgeting skills and banking knowledge literacy were found to have positive but insignificant effect on the growth with p value of 0.354 and 0.698 respectively. In addition, descriptive analysis findings indicate that accumulation of debt (through multiple borrowings and failure to adhere to the purpose of the loan) adversely affect debt repayment which may hinder growth of SMEs. Further the findings indicate that proper book keeping enables SMEs to meet debt obligations in time and manage stock effectively. The study further found that book keeping knowledge was not sufficient enough to enable SMEs to file the tax returns without engaging consultant and the SMEs were rated below average on aspect of reconciling cashbook with the bank statements. This study concludes that SMEs need to be trained on book keeping, budgeting and debt management. The study also conclude that SMEs should avoid diverting the amount borrowed to from intended purpose as well as accumulating debts through multiple borrowings from both formal and informal sector. Further the study conclude that SMEs should be encourage to prepare annual budget in order to enhances coordination of various financial functions with ultimate goal of meeting the agreed performance levels.enThesis