Financial Literacy as Strategy for Enhancing Financial Inclusion of Small Entrepreneurs

Introduction

Financial literacy, in the brightness of the new business reality, is the capability to adequately oversee financial resources over the life cycle and connect with effectively with financial products and services. Financial literacy is about discernment and makes effective decisions on the utilization of financial management (Gavigan, 2010). This is an area that requires knowledge, skill, attitude, and experience with goals to deal with the survival of the firm; profit maximization; sales maximization; capturing a particular market share; minimizing staff turnovers and internal conflicts; and maximizing wealth (Jacobs, 2001). It can be among the essential strategic tools to more organize allotments of financial resources and to considerable financial strength. In business, decision-making needs to be rational and be premised on available information. This implies that managers of business and individuals must have a reasonable degree of knowledge related to the available information to make good decisions. Remund (2010) opined that financial literacy is the degree to which one understands important financial concepts and possesses the capacity and confidence to handle personal funds of appropriate, brief period decision-making and solid long-term financial forethought.

A significant obstacle to the performance growth of sustainable small and medium scale enterprises (Small entrepreneurs) throughout the developing world is a lack of knowledge, skills, attitude, and awareness to cope and direct the finances of their organization in a hardy, transparent, and professional way. Joo and Grable (2000) stated that the reasons why business people make inappropriate, inadequate and ineffective financial decisions are because of the lack of personal financial knowledge, lack of time to learn about personal financial management, complexities in financial transactions and the extensive variety of choices in financial products/services. Lack of business management skills can magnify financial barriers for small entrepreneurs. A low degree of financial literacy can prevent the performance level of small entrepreneurs from adequately assessing and understanding different financing provision, and for navigating complex loan application procedures. Having realized this most of the countries have mandates of promoting financial knowledge and skills in assisting small entrepreneurs’ firm managers and owners in making the right financial decision. In India, the government established the financial stability and development council (FSDC) with the responsibilities of educating and counseling entrepreneurial and individuals on different sources of financing initiatives. According to Central Bank of Nigeria (CBN), Ghana government in 2009 approved a national strategy in collaboration with international agencies on financial literacy and consumer education in assisting entrepreneurs and small firm's owners and managers; while, Malaysia government adopted a three-pronged approach by establishing a financial working committee to oversee the financial literacy program for small entrepreneurs firms’ owners (CBN, 2012).

Accordingly, lack of financial literacy and access to financial services makes the majority to lag. This has been a concern and intense challenge faced by the small entrepreneurs with the recognition that lack of financial literacy is one of the factors contributing to ill-informed financial decisions and that these decisions could, in turn, had a tremendous negative spill-over (OECD, 2005). Hence, this research is a conceptual analysis based on a systematic literature review on financial literacy, strategic perspective of the firm’s performance and financial inclusion for small entrepreneurs and focuses on investigating how financial literacy can be used as a strategy for financial inclusion when it comes to small entrepreneurs.