The Effect of Financial Literacy and Financial Inclusion on MSMEs Performance

Abstract

AbstractThe performance of Micro, Small, and Medium Enterprises (MSMEs) has a vital role in the economy in Indonesia. Reaching 99.9% of the total businesses in Indonesia, MSMEs contribute significantly to job creation and employment. However, they still face many problems, especially capital problems, which are indicated by the low level of financial literacy and financial inclusion of MSME actors in Indonesia. This study aims to examine the effect and relationship of financial literacy and financial inclusion either partially or simultaneously on the performance of MSMEs in Indonesia. The population in this study was 517 MSMEs that were assisted by SME & IKM DPW of North Sumatra Province spread over 33 Regencies & Cities in North Sumatra. This study type is quantitative research using an associative approach and using PLS (Partial Least Square) analysis tools. The impact show that financial literacy and financial inclusion partially and simultaneously significantly affect the performance of MSMEs. Furthermore, skills and knowledge are the two most significant financial literacy indicators. Meanwhile, connection and quality are financial inclusion indicators with the most significant effect. Thus, it can be concluded that MSMEs performance in Indonesia can continuously be improved by increasing financial literacy and financial inclusion efforts. The government and relevant stakeholders need to continue developing, adjusting, and ensuring that the current and future programs and policies can be implemented well to address various problems most MSMEs face.