Sustainability and Performance of Small and Medium Business: the Role of Financial Literature

Abstract

Purpose: The purpose of this study is to examine the relationship between financial literacy, the sustainability of SMEs and the performance of SMEs. Theoretical framework: SMEs must have resilience and strength in maintaining the continuity of their business which is exposed to risks that must be faced (Kot, 2008 and Southiseng, and Walsh, 2010). Indicators of the success of SMEs can be measured through the business continuity of SMEs and the performance of SMEs. However, this has challenges, especially related to financial literacy in the use of financial products and services both digital and non-digital. Therefore, the study needs to be developed to gather more information about the role of financial literacy to the sustainability of SMEs and the performance of SMEs. Design/methodology/approach: This study uses quantitative research with primary data and secondary data. The population in this study were all SMEs and samples were taken using the saturated sample technique as many as 82 registered SMEs and 50 unregistered SMEs. The data analysis technique in this study used Structural Equation Modeling (SEM) with SmartPLS. Findings: The results of this study indicate the contribution of financial literacy to the SMES’s sustainability and performance. Financial literacy has a positive effect on the sustainability of SMEs. Research also shows that financial literacy has a positive effect on the performance of SMEs. Research, Practical & Social implications: The future research should highlight other essential factors that could contribute the SME’s sustainability and performance such as halal branding and label as trending factors nowadays. Originality/value: The results indicate the importance role of financial literacy on the sustainability and performance of SMEs especially SME’s financial management would determine the successful of SME’s livelihood.