An Investigation of the Extent of Implementation of the Financial Management Practices of Agri-SMEs in developing countries: Evidence from Tanzania

Abstract

The success of agricultural Small and Medium Enterprises (agri-SMEs), among other factors, heavily relies on their ability to manage finances effectively. This study examined the extent to which agricultural SMEs in Tanzania practice financial management activities. The study employed a cross-sectional survey design to collect data from 427 agri-SMEs in three regions of Tanzania. Descriptive statistics and higher-order reflective-formative Structural Equation Model (SEM) were employed for data analysis. The findings indicated moderate adoption of financial management practices. Specifically, agri-SMEs were found to frequently engage in working capital management practices, such as maintaining sufficient cash flows and records for payables and receivables. However, financial reporting is less frequently practiced, with sporadic financial statements preparation and financial analysis. The findings indicate further that other financial management practices such as financial accounting, capital budgeting and financing management were moderately and infrequently implemented, with external financing sources being utilized less frequently compared to internal financing sources. The path analysis indicates that all lower-order constructs significantly contributed to the higher-order financial management practice construct with capital budgeting demonstrating the strongest impact. The findings highlight the need for improving financial reporting, analysis, and external financing usage in Tanzanian agri-SMEs. These findings offer valuable insights agri-SMEs in developing countries to appropriately strategize on implementation of financial management practices that will lead to improved access to finance and high performance.