Abstract
The Micro, Small, and Medium Enterprise (MSMEs) sector has been recognized as an essential contributor to the economic development of Indonesia. However, the sustainability of MSMEs in Indonesia is still relatively low compared to the rest of ASEAN countries with similar levels of economic growth. This study aims to extend previous studies on the relationship between MSMEs characteristics and their sustainability by specifically including financial literation as a mediation role. This study used proportional random sampling as a sampling technique. A total of 191 MSMEs owner-managers questionnaire data were processed by using Partial Least Square analysis. This study confirmed the positive influence of MSMEs characteristics on financial literacy and financial literacy on the sustainability of MSMEs. Moreover, financial literation proves to be a significant mediator of MSMEs sustainability. This study suggests that MSMEs owner-managers need to be financially literate as it can enable them to make a good financial decision that can ensure their business sustainability.
Highlights
The role of MSMEs in the economic growth of a country is widely known and utilized to improve the national economy in many countries including Indonesia
While financial literacy is measured by the scale developed by Oseifuah et al (2018) and Hussain et al (2018), MSMEs sustainability measurement was derived from Bourlakis et al (2014)
Financial literation proves to be a significant mediator of MSMEs sustainability in this study
Summary
The data shows that SMEs in Indonesia grows significantly up to 97.2% and contribute to GDP for 57.8% (Wignaraja, 2015), while Small Business contributes up to 45% of total employment and 33% of national income in developing countries (Kumar, 2017). The contribution of SMEs is supported by the growth of production in small and micro industries from 2017 to 2019 with an annual percentage of 4.74%, 5.66%, and 5.80% (Kumar, 2017). The competitiveness of SMEs in Indonesia is relatively low compared to other ASEAN countries such as Singapore, Malaysia, and Thailand. Bongomin et al (2017) added that the lack of access to formal and non-formal financial services is one of the biggest obstacles for SMEs to be competitive and grow. Other issues such as human resource capacity and capability, ownership, marketing, technology adoption, and other problems related to business management become the reason why Indonesia’s SMEs are difficult to compete (Abor & Quartey, 2010) and maintain their business sustainability in the future
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