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Abstract:
The study sought to establish the effect of financial literacy on growth of small and medium enterprises in Nyeri County, Kenya. The study problem was motivated by limited empirical literature linking financial literacy and growth of SMEs in the Kenyan Context. The financial literacy dimensions included: debt management literacy, book keeping, budgeting skills and banking knowledge. The study was anchored on MAR knowledge spill over theory and stages of growth theory. The research design used was descriptive. 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 book keeping skills have a positive and significant effect on growth of SMEs studied. In addition, descriptive analysis 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. Debt management literacy was found to be crucial for the SMEs growth as it helped SMEs to manage funds accessed through credit effectively. It was found that persons with more debt management literacy were able to generate more wealth through administration of the resources more optimally with less financial cost and hence the need for a more deliberate debt management literacy in SMEs. The study found that poor budgeting skills were a major cause of failure for the SMEs. Due to the difference in the business operations late budgeting led to poor planning and thus implementation, it is hence important for all SMEs to have a great input in the budgeting skills as it has positively impacted the growth of SMEs. The study also found that knowledge of banking services was key in the growth of SMEs as financial knowledge is significant on debt administration and its repayment too. Due to the emerging economies, the study found the need for increased knowledge of banking services for the growth of SMEs. This study concludes that SMEs need to be trained on book keeping and recording keeping in to enhance growth of SMEs. In addition, the study concludes that SMEs should be encouraged to maintain proper books of accounts to assist in tracking all business transactions when preparing financial statements which are used by various stakeholders to make financial decisions.
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