Effect of Financial Literacy on The Growth of Micro and Small Enterprises in Kenya

Abstract

Micro and small enterprises (MSEs) constitute a vital segment driving economic growth and employment opportunities in various economies, especially in developing nations like Kenya. This study aims to comprehensively explore the intricate relationship between financial literacy and the growth trajectory of MSEs, in Kenya which is a developing country. The primary objective is to understand how proficiency in budgetary control, meticulous bookkeeping, adept debt management, and comprehensive knowledge of banking services influence the growth path of MSEs. The study integrates theoretical frameworks, including enterprise growth theories by Larry Greiner and the resource-based view theory advocated by Edith Penrose. Empirical findings reveal that MSEs, pivotal for economic impact, confront hurdles in accessing financial resources, often resorting to informal lenders with limited support and high interest rates. Insufficient knowledge about banking services, bookkeeping, and budgeting further hinders their growth. This research underscores the vital contribution of MSEs to Kenya's economy and the challenges impeding their growth. Emphasizing financial literacy as a key factor, the study provides theoretical foundations and practical insights.