Financial literacy and SME loan repayments in South Africa during the COVID-19 era
-
DOIhttp://dx.doi.org/10.21511/imfi.19(4).2022.09
-
Article InfoVolume 19 2022, Issue #4, pp. 113-121
- Cited by
- 604 Views
-
149 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
Small and medium-sized enterprises (SMEs) are the primary victims of the COVID-19 outbreak because they lack adequate resources and are poorly prepared for such interruptions. For SMEs to expand, they need financial assistance such as loans and advances from financial service providers. However, they struggle to repay these loans and advances because they are small in size and do not make large turnovers, and owners lack adequate financial literacy. This study aims to investigate the relationship between financial literacy and loan repayment of SMEs. The study followed a positivist paradigm, and a quantitative approach was employed. A total of 110 self-completed Likert questionnaires were distributed, only 107 were filled correctly and analyzed using SPSS. The results from Pearson’s correlation coefficient showed a strong and significant relationship between financial literacy and SME loan repayments at r = 0.324, P < 0.0005. Regression analysis showed a significant linear relationship between financial literacy and SME loans repayments, F (1.152) = 17.806; P < 0.0005. P < 0.0005 is less than the independent variable (SME loans repayments), B = 0.324, P < 0.0005. The results imply that if SME owners are well-versed in finance, they will be capable of repaying outstanding loans and advances timely.
- Keywords
-
JEL Classification (Paper profile tab)I22, L25, O42
-
References40
-
Tables3
-
Figures1
-
- Figure 1. Conceptual framework
-
- Table 1. Loan repayment information
- Table 2. Correlation between financial literacy and SME loan repayments
- Table 3. Linear regression
-
- Akinsola, F., & Ikhide, S. (2019). Bank lending to small and medium scale enterprises (SMEs) and business cycle in South Africa after the global financial crisis. The Journal of Developing Areas, 53(1).
- Amadasun, D. O., & Mutezo, A. (2022). Effect of market-driven strategies on the competitive growth of SMEs in Lesotho. Journal of Innovation and Entrepreneurship, 11(1), 1-17.
- Anshika, A., & Singla, A. (2022). Financial literacy of entrepreneurs: a systematic review. Managerial Finance.
- Asakania, F. M. (2016). Influence of financial literacy on performance of small and medium enterprises: A case of Butere sub county Kakamega county Kenya. Africa International Journal of Management Education and Governance (AIJMEG), 1(2), 33-43.
- Baidoo, S. T., Yusif, H., & Ayesu, E. K. (2020). Improving loan repayment in Ghana: Does financial literacy matter? Cogent Economics & Finance, 8(1), 1787693.
- Bateman, M. (2019). The rise of microcredit ‘control fraud’ in post-apartheid South Africa: from state-enforced to market-driven exploitation of the black community. Review of African Political Economy, 46(161), 387-414.
- Boushnak, E. (2018). Factors influencing credit decision for lending SMEs: A case study on National Bank of Egypt. Open Access Library Journal, 5(11), 1.
- Caglio, C.R., Darst, R.M. and Kalemli-Özcan, Ṣ. (2021). Risk-taking and monetary policy transmission: Evidence from loans to SMEs and large firms (No. w28685). National Bureau of Economic Research.
- Chepngetich, P. (2016). Effect of financial literacy and performance SMEs. Evidence from Kenya. American Based Research Journal, 5(11), 26-35.
- Ciampi, F., Cillo, V., & Fiano, F. (2020). Combining Kohonen maps and prior payment behavior for small enterprise default prediction. Small Business Economics, 54(4), 1007-1039.
- Dhewanto, W., Nazmuzzaman, E., & Fauzan, T. R. (2020). September. Cross-countries’ policies comparison of supporting small and medium-sized enterprises during the covid-19 pandemic. In Proceedings of the European Conference on Innovation and Entrepreneurship, ECIE (pp. 218-225).
- Didier, T., Huneeus, F., Larrain, M., & Schmukler, S. L. (2021). Financing firms in hibernation during the COVID-19 pandemic. Journal of Financial Stability, 53, 100837.
- Disse, S., & Sommer, C. (2020). Digitalization and its impact on SME finance in Sub-Saharan Africa: Reviewing the hype and actual developments (Discussion Paper No. 4/2020).
- Duarte, F. D., Gama, A. P. M., & Gulamhussen, M. A. (2018). Defaults in bank loans to SMEs during the financial crisis. Small Business Economics, 51(3), 591-608.
- Gaitho, N. W. (2013). Role of credit reference bureaus on credit access in Kenya: A survey of commercial banks in Kenya. European Scientific Journal, 9(13).
- Glaser, M., & Walther, T. (2014). Run, walk, or buy? Financial literacy, dual-process theory, and investment behavior.
- Jote, G. G. (2018). Determinants of loan repayment: the case of microfinance institutions in Gedeo Zone, SNNPRS, Ethiopia. Universal Journal of Accounting and Finance, 6(3), 108-122.
- Kauffmann, C. (2005). Financing SMEs in Africa.
- Kigwa, N. (2020). Micro credit finance and financial performance of small and medium enterprises in Nyamira town, Kenya (Doctoral dissertation, MMUST).
- Kiptum, A. K. (2019). Effect of financial skills on loan repayment: a case of micro and small enterprises in Elgeyo Marakwet County, Kenya (Doctoral dissertation). Egerton University.
- Kitomo, D., Likwachala, R., & Swai, C. (2021). Financial Management Practices Among Micro Enterprises and their Implications for Loan Repayment: A Case of Solidarity Group Lending of DCB Commercial Bank in Dar es Salaam. International Journal of Economics and Finance, 12(12), 122-122.
- Lu, Y., Wu, J., Peng, J., & Lu, L. (2020). The perceived impact of the Covid-19 epidemic: evidence from a sample of 4807 SMEs in Sichuan Province, China. Environmental Hazards, 19(4), 323-340.
- Muhammad, I. B., Bambale, A. J. A., Ibrahim, M. A., & Sulaiman, S. A. (2019). Loan characteristics, loan repayment, and performance of small and medium enterprises in Kano metropolitan: A mediating model. Journal of Finance, Accounting and Management, 10(1), 43-56.
- Mukono, A. (2015). Determinants of loan repayment by small and medium enterprises in Nairobi County, Kenya. University of Nairobi.
- Musara, M., & Nieuwenhuizen, C. (2021). Motivations and unique challenges of successful foreign-owned small and medium enterprises in South Africa. Development Southern Africa, 38(6), 967-984.
- Musti, B. M., & Mallum, A. (2020). The impact of loan repayment of microfinance banks on the performance of SMEs in Adamawa State. Journal DOI, 6(7).
- Mutamimah, M., Tholib, M., & Robiyanto, R. (2021). Corporate governance, credit risk, and financial literacy for Small Medium Enterprise in Indonesia. Business: Theory and Practice, 22(2), 406-413.
- Mutantabowa, B. (2018). The impact of financial literacy on the success and profitability (performance) of small and medium enterprises in Lusaka central business district (Doctoral dissertation). Cavendish University.
- Mutegi, H. K., Njeru, P. W., & Ongesa, N. T. (2015). Financial literacy and its impact on loan repayment by small and medium entrepreneurs. International Journal of Economics, Commerce and Management, 3(3), 1-28.
- Njoroge, N. R. (2018). Joint liability and group loan performance among micro finance institutions: a case of Nyandarua county, Kenya (Doctoral dissertation). Kenyatta University.
- Nguyen, B., & Canh, N. P. (2021). Formal and informal financing decisions of small businesses. Small Business Economics, 57(3), 1545-1567.
- Nkundabanyanga, S. K., Kasozi, D., Nalukenge, I., & Tauringana, V. (2014). Lending terms, financial literacy, and formal credit accessibility. International Journal of Social Economics.
- Paley, J., Cheyne, H., Dalgleish, L., Duncan, E. A., & Niven, C. A. (2007). Nursing’s ways of knowing and dual process theories of cognition. Journal of Advanced Nursing, 60(6), 692-701.
- Ripain, N., Amirul, S. M., & Mail, R. (2017). Financial literacy and SMEs’ potential entrepreneurs: The case of Malaysia. Journal of Administrative and Business Studies, 3(2), 60-68.
- Salifu, A. T., Tofik-Abu, Z., Rahman, M. A., & Sualihu, M. A. (2018). Determinants of loan repayment performance of small and medium enterprises (SMEs) in Ghana: The case of Asante Akyem Rural Bank. Journal of African Business, 19(2), 279-296.
- Schwab, L., Gold, S., & Reiner, G. (2019). Exploring financial sustainability of SMEs during periods of production growth: A simulation study. International Journal of Production Economics, 212, 8-18.
- Ssekiziyivu, B., Bananuka, J., Nabeta, I. N., & Tumwebaze, Z. (2018). Borrowers characteristics, credit terms and loan repayment performance among clients of microfinance institutions (MFIs): Evidence from rural Uganda. Journal of Economics and International Finance, 10(1), 1-10.
- Tala, L. (2021). South Africa’s Lending Infrastructure: Does it Facilitate or Constrain Access to Credit Finance by Small and Medium Enterprises (SMEs)? Journal of Public Administration, 56(2), 276-287.
- Wise, S. (2013). The Impact of Financial Literacy on New Venture Survival. International Journal of Business and Management, 8(23).
- Ye, J., & Kulathunga, K. (2019). How does financial literacy promote sustainability in SMEs? A developing country perspective. Sustainability, 11(10), 2990.