Financial management practices and performance of agricultural small and medium enterprises in Tanzania

Abstract

Small and Medium-Sized Enterprises in agriculture sector, contribute significantly to economic change in developing countries by addressing a wide range of unemployment, nutrition, income poverty, and food security issues. Despite their critical role and contribution to economic growth, they have received a great deal of criticism for their poor performance. Most of the challenges confronting these agro-enterprises, however, are the result of poor financial management practices. Previous research studies have indicated generally that financial management practices have an impact on the performance and success for small businesses, yet scholarly research shows there is limited empirical evidence on which financial management practices have an influence on the agri-SMEs performance, which is why it was critical to examine this phenomenon. A total of 427 SMEs in Tanzania's agricultural sector were surveyed and examined. The developed hypotheses were evaluated using Structural Equation Modeling (SEM) with Smart PLS 4 to determine the effect of implementing financial management practices on the performance of agri-SME. Findings from the empirical study shows that working capital management practices and financing management practices have significant positive influence on both financial and organizational performance of the surveyed agro enterprises, while the accounting, financial reporting practices and capital budgeting management practices have insignificant influence on the performance agri-SMEs performance. Based on the findings, the study recommends that the government and regulatory authorities such as the Small Industries Development Organization (SIDO) must continue to emphasize their policies for improved agri-SME performance and sustainability while directly or indirectly encourage managers (venture owners) to consider working capital and financing practices as core to their financial management strategies.