EFFECT OF FINANCIAL LITERACY ON PERFORMANCE OF MICRO, SMALL, AND MEDIUM ENTERPRISES IN ABUJA MUNICIPAL AREA COUNCIL, NIGERIA

Abstract

This study investigates the role of financial literacy in the growth and sustainability of Micro, Small, and Medium Enterprises (MSMEs) in Nigeria, focusing specifically on MSMEs operating in the Abuja Municipal Area Council (AMAC). Recognizing the critical contribution of MSMEs to economic development—particularly in terms of employment and GDP—the study aims to under-stand the complex relationship between financial literacy and business success within the Nigerian context. Despite their robust contributions, approximately 75% of MSMEs fail within the first three years of operation, highlighting financial literacy as a vital determinant of growth. This research employs a survey design and utilizes a multiple regression technique for analysis and hypothesis testing. Findings indicate that financial knowledge has a statistically significant positive impact on MSMEs’ performance in AMAC, Abuja. In contrast, financial behaviour does not have a statistically significant impact on the performance of MSMEs in this area. This suggests that the financial conduct and practices of small business owners and managers are not directly correlated with the performance outcomes of their enterprises. However, financial experience is found to have a statistically significant positive impact on the growth of MSMEs in AMAC, Abuja, implying that greater financial exposure and hands-on knowledge significantly enhance productivity and profitability. The study recommends that equipping aspiring and existing MSME leaders with enhanced financial management knowledge through literacy initiatives can significantly impact productivity and growth. Policies fostering mentorships, internships, and apprenticeships, along with interactive case studies and simulations in entrepreneurship courses, are vital. Additionally, leveraging experienced business owners to share insights with budding entrepreneurs could further enrich this practical learning experience.