Financial Literacy and Growth of Micro, Small, and Medium Enterprises in West Java, Indonesia

Abstract

Micro, small, and medium enterprises (MSMEs) are important assets for the economic sustainability in Indonesia. The sector has an important role in encouraging economic growth and supporting the creation of new jobs for the Indonesian population. When Indonesia was facing the economic crisis situation, MSMEs remained and stood strong. In fact, the data shows an increasing number of MSMEs. Despite their contribution to Indonesia’s economies, it turns out that MSMEs still have very basic problems. The results of previous research indicate that MSMEs still face various problems related to financial management caused by a lack of managerial and financial knowledge. There are many cash flow problems faced by MSMEs that are in line with the lack of knowledge and understanding of financial management by MSME actors. This indicates that owners or managers of MSMEs need to have sufficient financial literacy. Understanding of financial literacy is paramount for business actors and can be utilized for instance to prepare financial statements that can be used to obtain funds. In the context of MSMEs, owners or managers need to have financial knowledge related to financial access and also for a company business to grow well. This study aims to analyze the financial literacy of owners or managers and its impact on access to finance and growth of the MSMEs in West Java, Indonesia. The samples of this research are MSMEs’ owners or managers of various business types. Data concerning Financial Literacy, Access to Finance, and Growth of the MSMEs are obtained through questionnaires. The obtained data were processed using Structural Equation Modeling to ensure the relationships between research variables. The results of the research analysis show depictions of the financial literacy, financial access, and growth of MSMEs in West Java, Indonesia. The results of the study support the previous studies and theories that Financial Literacy has a positive effect on Access to Finance and Growth of MSMEs, and Access to Finance also has a positive effect on Growth of MSMEs.