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The Effect of Financial Literacy on Small Business Financing Decisions. A Case of Shop Owners at Chelston Big Market

Author

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  • Mulenga Nonde

    (School of Business, University of Lusaka, Lusaka, Zambia)

  • Macmillan Handema

    (School of Business, University of Lusaka, Lusaka, Zambia)

Abstract

The low uptake of loans has been identified as a major constraint of MSME development and growth in Zambia. This is perturbing since small businesses are touted as critical tools for economic growth and inclusive development. This study sought to determine the effect of financial literacy on small business financing decisions using a case in point of shop owners at Chelstone big Market in Lusaka. The study specifically sought to determine how the level of financial literacy affects the uptake and use of loans in the financing of small businesses. A mixed method study was adopted for this study. Data was collected from shop owners at Chelston big market in Lusaka. Quantitative data was analysed using descriptive statistics while qualitative data was analysed using thematic and content analysis. The study established that the level financial literacy influenced the uptake and use of debt financing through improved financial skills and financial decision making of enterprise owners. This in turn also affected the level of business performance and growth. It was also established that the resentment in the use of debt financing was influenced by collateral demands, high interest rates and tenure of loan products. The study recommends that the government through the local council must facilitate for the enhancement of financial literacy through training so as to improve the quality of financial decisions and business performance. The study recommends that the council could do this by collaborating with colleges and universities to train basic concepts and principles of business financial management to business owners. Furthermore, the study recommends that financial institution and other lenders must provide full information on their loan products to the level of their clients’ comprehension to minimize any information asymmetry problems that lead to the resentment of loan products. Limiting the financing of businesses to owner funds, limits the growth and success of businesses.

Suggested Citation

  • Mulenga Nonde & Macmillan Handema, 2021. "The Effect of Financial Literacy on Small Business Financing Decisions. A Case of Shop Owners at Chelston Big Market," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 5(1), pages 174-183, January.
    • Handle: RePEc:bcp:journl:v:5:y:2021:i:1:p:174-183
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    References listed on IDEAS

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