Financial literacy in Saudi Arabian MSMES: Insights from Islamic banks’ customers

Abstract

This paper investigates the influence of financial knowledge, financial attitude, financial skills, and financial behavior on the financial literacy of Saudi Arabian MSMEs. The sample is 341 MSMEs that are clients of Islamic banking institutions. The paper employs the PLS-SEM method to analyze the collected data. The findings reveal statistically significant and strong positive correlations (p < 0.05) between financial knowledge, financial skills, financial behavior, and financial literacy. This implies that MSMEs with a strong foundation in financial knowledge, proficient skills, and positive financial behaviors tend to exhibit higher levels of financial literacy. Among the variables studied, financial knowledge exerted the strongest influence on financial literacy. This shows the importance of enhancing financial knowledge among MSME owners and managers to improve their overall financial literacy. Interestingly, the study did not identify a statistically significant relationship between financial attitude and financial literacy. This suggests that simply possessing a positive attitude toward finance may not necessarily translate into higher levels of financial literacy without complementary knowledge, skills, and behaviors. By prioritizing these areas, policymakers and Islamic banking institutions can contribute to improving financial literacy levels among Saudi Arabian MSMEs, ultimately fostering their growth, performance, and resilience.