University of Eastern Africa, Baraton

Malawi Adventist university

Lakeview Campus

Business Department

Relationship between Financial Literacy, Profitability and Growth of Small Scale Enterprise

in Mzuzu, Malawi

By:

Anastasia Nyirenda (SNYIAN 01)

A Dissertation Submitted to the faculty of Business in Partial Fulfilments of the Requirement

for the Award of Bachelor’s Degree in Business Administration majoring in Accounting

Mr Titani Mtonda

(Supervisor)

May, 2016

i

DECLARATION

This research paper was conducted to the best of my ability and knowledge. All the

information provided in this study is of other authors which have been respectfully cited as

been from other sources. I hereby declare that this research paper was done in good

conscience and hence can be deemed to be reliable.

Declared by:

ANASTASIA NYIRENDA

(SNYIAN 01)

Signature………………………… Date………………………………..…

Certified by:

MR. T. P MTONDA

(Supervisor)

Signature………………………… Date………………………………..…

Approved by:

MR. C. NGALA ……………………………………………..

(Instructor)

Signature………………………… Date………………………………..…

This research project has been submitted for examination with my approval as the University

Supervisor.

……………………………… …………………………. ……………………………

Supervisor Supervisor‟s Signature Date

ii

ACKNOWLEDGEMENT

I owe a debt of gratitude to many people who helped me complete this thesis. I would like to

acknowledge the help of all. First and foremost I would like to thank Almighty God for

everything. I want to express my deepest acknowledgement to my supervisor, Mr T.P Mtonda

for his valuable advice and recommendations.

I acknowledge the instructor of the course who is also the Head of Business Department Mr

C. Ngala for his valuable advice, Mr Ishmael Nyirenda, for his support with statistical

techniques and data analysis. I also acknowledge Mr Robert Banda and Mr D Kasoti for their

comments on sentence construction in earlier drafts of my thesis.

I would particularly like to thank the following people for their support related to my

dissertation: My best friend Tchiyiwe Dube who encouraged me in everything, My sisters

Carolyne Nyirenda and Gertrude Nyirenda who were always there for me in terms of

financial support not forgetting my class mate Yamikani Matunga who helped me in selecting

the topic before it was approved. To my parents (Mr Charles Nyirenda and Mrs Fayness

Simwaka) and all my relatives, I wish to extend my loving thanks for their encouragement.

Finally, my greatest debt of gratitude is to, Mr James Jombole Nyirenda who made it possible

for me to study at Malawi Adventist University. This thesis could not have been written

without this entire people.

iii

DEDICATION

I dedicate this paper to my loving family as well as a man who made it possible, James

Jombole Nyirenda, for unwavering support and my Sisters Carolyn, Patricia and my twin

sister Gertrude Nyirenda not forgetting my aunt Salome Banda (Mrs Nyirenda) for their

moral support, understanding, perseverance and inspiring me during my study period. They

have been of constant encouragement during the entire period.

iv

ABSTRACT

Malawi is an entrepreneurial country and the Small Scale Enterprise sector is one of the key

drivers of Malawi economy. Majority of Malawian whether educated or not want to be

entrepreneurs by engaging in various business activities ranging from farming to offering

professional services such as lawyers and doctors. However, not all entrepreneurs succeed in

growing their small enterprises to successful business. In fact most of new businesses end up

as a failure within the first five years after the commencement. The objective of this paper is

to find out whether there is a relationship between financial literacy and SSEs profitability

and growth by using a study instrument which was a questionnaire. A sample of 50

entrepreneurs was selected where questions in both financial literacy growth and SSEs

profitability were asked. The data collected was then analyzed using SPSS and Frequency

analysis using Ms Excel in order to establish relationship between financial literacy and SSEs

profitability and growth. From the research findings, all the SSEs entrepreneurs who filled

the questionnaires were found to have some level of financial literacy and on average most

entrepreneurs scored well above average in financial literacy. Highly successful

entrepreneurs scored highly in financial literacy and demonstrated high understanding of

finance. In contrast, less successful entrepreneurs showed negative and no growth at all and

low level of financial literacy majority of who were found to be in lower level of education.

This study concludes that there is a positive relationship between financial literacy and

profitability as well as growth of SSEs in Mzuzu City. It further suggests that financial

literacy plays a key role in SSEs success.

Keywords; Financial literacy, Financial performance, Small Scale Enterprises (SSEs),

Profitability, Growth, Frequency analysis, Statistical Package for Social Sciences(SPSS)

v

Table of Contents

DECLARATION ..................................................................................................................................... i

ACKNOWLEDGEMENT ...................................................................................................................... ii

DEDICATION ....................................................................................................................................... iii

ABSTRACT ........................................................................................................................................... iv

CHAPTER ONE ..................................................................................................................................... 1

1.1. Background of the study ............................................................................................................. 1

1.2 Purpose of study ................................................................................................................................ 3

1.3 Statement of the problem .................................................................................................................. 3

1.4 Research objectives ........................................................................................................................... 3

1.4.1 General objective ....................................................................................................................... 3

1.4.2 Specific Objectives .................................................................................................................... 3

1.5 Research questions ............................................................................................................................ 4

1.6 Significance of the study ................................................................................................................... 4

i. Malawi government .................................................................................................................... 4

ii. Commercial bank and Micro Finance institution ........................................................................ 4

iii. Academicians and Researchers ............................................................................................... 4

1.7 Theoretical Framework ..................................................................................................................... 5

1.7.1 The Knowledge Spillover Theory .............................................................................................. 5

1.7.2 Theory of Behaviour and Personal Finance Education .............................................................. 5

1.8 Conceptual Framework ..................................................................................................................... 6

1.9 Research Hypothesis ......................................................................................................................... 6

2.0 CHAPTER TWO .............................................................................................................................. 8

2.1.1 General review ............................................................................................................................... 8

2.1.2 Small Scale Enterprises (SSEs).................................................................................................. 8

2.1.3 The role of Small Scale Enterprises ........................................................................................... 9

2.1.4 Challenges and problems faced by SSEs in Vietnam ................................................................ 9

2.1.5 Problems of Small Scale Enterprises (SSEs) in Malawi .......................................................... 10

2.1.2 Focus review ................................................................................................................................ 11

2.2.1 Financial Literacy .................................................................................................................... 11

2.2.2.2 Levels of financial literacy .................................................................................................... 12

2.2.2.3 Measuring financial literacy.................................................................................................. 12

2.2.3 Specific review ............................................................................................................................. 13

2.2.3.1 Business Growth Potential of Small Scale Enterprises (SSEs) ............................................. 13

vi

2.2.3.2 Small Scale Enterprise (SSE) Profitability ........................................................................... 13

2.2.3.3 Measuring profitability ......................................................................................................... 14

2.2.3.4 Factors influencing profitability ............................................................................................ 15

2.2.3.5 Relationship between Financial literacy growth and Profitability ........................................ 16

3.0 CHAPTER THREE ........................................................................................................................ 17

3.2 Introduction ................................................................................................................................. 17

3.2.1 Research Design ........................................................................................................................... 17

3.2.2 Research Population ..................................................................................................................... 17

3.2.3 Research Sample .......................................................................................................................... 17

3.2.4 Sampling Techniques ............................................................................................................... 18

3.2.5 Research Area .......................................................................................................................... 18

3.2.6 Design of Research Tools (Instruments) ...................................................................................... 18

3.2.7 Data Collection Methods ............................................................................................................. 19

4.0 CHAPTER FOUR ........................................................................................................................... 20

4.1 DATA ANALYSIS, RESULTS AND INTERPRETATIONS ....................................................... 20

4.2.1 Rate of Respondents ................................................................................................................ 20

4.2.2 GENERAL INFORMATION .................................................................................................. 21

4.2.2.3 Nature of the Business ...................................................................................................... 23

4.2.2.4 Position in the Business .................................................................................................... 23

4.2.2.5 Years in the Business ........................................................................................................ 24

4.2.2.6 Number of employees ....................................................................................................... 25

4.2.2.7 Additional Employees ....................................................................................................... 26

4.2.3 MEASURING SMALL SCALE PROFITABILITY ............................................................... 27

4.2.3.1 Profit trends of the Small Scale Businesses ...................................................................... 28

4.2.3.2 The trend in the losses ....................................................................................................... 29

4.2.3.3 Area of investing profits ................................................................................................... 30

4.2.3.4 Profit Investing Areas ...................................................................................................... 31

4.2.4 BASIC FINANCIAL LITERACY ........................................................................................... 32

4.2.4.1 Training on financial reporting ......................................................................................... 32

4.2.4.2 Owner‟s monthly salary .................................................................................................... 33

4.2.4.3 Sources of income for emergency ..................................................................................... 34

4.2.4.4 Financial plan and budget practices .................................................................................. 35

4.2.4.5 Monitoring financial plan and budget prepared ................................................................ 36

4.2.4.6 Consequences of Financial illiteracy on Small Scale Businesses ..................................... 37

vii

4.2.5 BASIC GROWTH OF THE BUSINESS ................................................................................. 37

4.2.5.1 Access to financial Assistance .......................................................................................... 38

4.2.5.2 Factors considered when acquiring a loan ........................................................................ 39

4.2.5.3 Perception of Debt burden ................................................................................................ 40

Table 4.21: Perception of debt burden .................................................................................................. 41

4.2.5.4 Relationship between financial literacy and profitability ................................................. 41

4.2.5.5 Relationship between financial literacy and Growth ........................................................ 42

5.3 Summary ......................................................................................................................................... 44

5.5 Recommendation for Further Research .......................................................................................... 45

5.6 Limitations of the Study .................................................................................................................. 45

REFERENCES ..................................................................................................................................... 46

Appendix I: Questionnaire .................................................................................................................... 49

viii

LIST OF TABLES

Table 1:Summary of sample and retrival rate .......................................................................... 20

Table 2: Gender........................................................................................................................ 21

Table 3:Level of Education ...................................................................................................... 22

Table 4:Nature of Business ...................................................................................................... 23

Table 5:Position is the Business: ............................................................................................. 24

Table 6:Years in the Business .................................................................................................. 25

Table 7:Number of Employees ................................................................................................ 26

Table 8:Employees Added ....................................................................................................... 26

Table 9:Profit made for the past 3 years .................................................................................. 28

Table 10:Profit trend ................................................................................................................ 28

Table 4.11:Losses trend ........................................................................................................... 29

Table 12:Investment of Profits................................................................................................. 30

Table 13:Area of investing profits ........................................................................................... 31

Table 14:Training on business ................................................................................................. 32

Table 15:Owners monthly salary ............................................................................................. 33

Table 16:Sources of income for emergency ............................................................................ 34

Table 17:Plan for the business ................................................................................................. 35

Table 18:Monitoring plan/financial budget ............................................................................. 36

Table 19:Growth rate ............................................................................................................... 38

Table 20:Access to Loan:......................................................................................................... 38

Table 21:Factors on acquiring loan.......................................................................................... 39

ix

LIST OF FIGURES

Figure 1:Conceptual framework ................................................................................................ 6

Figure 2: Summary of sample and retrieval rate ...................................................................... 20

Figure 3: Gender ...................................................................................................................... 21

Figure 4:Level of Education .................................................................................................... 22

Figure 5: Nature of the Business .............................................................................................. 23

Figure 6: Position in the Business ............................................................................................ 24

Figure 7: Years in the Business ............................................................................................... 25

Figure 8: Number of Employees ............................................................................................. 26

Figure 9: Employees Added ..................................................................................................... 27

Figure 10: Profit made for the past 3 years .............................................................................. 28

Figure 11: Profit trend .............................................................................................................. 29

Figure 4.12: Losses trend ......................................................................................................... 30

Figure 13: Investment of Profits .............................................................................................. 31

Figure 14: Area of investing Profits........................................................................................ 32

Figure 15: Training on Business Course .................................................................................. 33

Figure 16: Owners monthly salary ........................................................................................... 34

Figure 17: Sources of income for emergency .......................................................................... 35

Figure 18: Plan for the business ............................................................................................... 36

Figure 19: Monitoring plan or financial budget……… .......................................................... 37

Figure 20: Growth rate ............................................................................................................. 38

Figure 21: Access to Loan ....................................................................................................... 39

Figure 22: Factors considered before acquiring loan ............................................................... 40

x

LIST OF ACRONYMS

MS Microsoft Excel

SSEs Small Scale Enterprises

MDGs Millennium Development Goals

SPSS Statistical Package for Social Sciences

SEDA Small Enterprises Development Agency

xi

DEFINITION OF OPERATIONAL TERMS

Financial literacy

Is the ability to use knowledge and skills to manage financial resources effectively for a

lifetime of financial well-being (PACFL, 2008).

Kempson (2009) defined financial literacy as a combination of awareness, knowledge, skill,

attitude and behaviour necessary to make sound financial decisions and ultimately achieve

individual financial wellbeing.

Profitability management

According to McMahon (2005) profitability management is concerned with maintaining or

increasing a business‟s earnings through attention to cost control, pricing policy, sales

volume, stock management, and capital expenditures

Financial management

Meredith (2008) defined financial management as all areas of management which involve

finance not only the sources and uses of finance in the enterprise, but also the financial

implications of investment, production, marketing or personnel decisions and the total

performance of the enterprise.

Efficient financial management

In this research, is defined as financial management that achieves financial management

objectives without wasting financial resources.

Performance

Chabwana (2015) defined performance as the ability of the business to meet the required

standard, increased market share, improve facilities, ensuring return on profitability and total

reduction in costs.

Data:

Facts, opinions and statistics that have been collected together and recorded for reference or

for analysis

Dependent variable:

Variable that changes in response to changes in other variables in this study we have Growth

and profitability

Independent variable: Variable that causes changes to a dependent variable or variables

Hypothesis: Hypothesis is a testable proposition about the relationship between two or more

events or concept.

1

CHAPTER ONE

1.0.INTRODUCTION

This chapter presents the background of the research study. It also focuses on the research

problem and the questions that have to be tackled by the research study. It describes the

significance of the study,

1.1. Background of the study

Like little drops of water that forms a mighty ocean, the littleness of small scale businesses

from the foundation has been the basis of industrialization in developing countries of the

world (Burns, 2001). Globally, small scale enterprises have contributed extremely in

improving the living standard of the people by providing jobs to relieve the society of social

embarrassment, stimulating indigenous entrepreneurship and utilizing scarce resources.

Millennium Development Goals (MDGs) are making effort to reduce poverty rate in

developing countries and also reducing the dependency of people on government hence this

is achieved through the growth and development of small scale enterprises which is being

supported by MDGs. (Abor and Quartey 2010).

Small Scale Enterprises (SSEs) play important roles in the economic growth and

development of every nation. They are considered to be a genuine vehicle for the

achievement of national macro-economic objectives in terms of employment generation at

low investment cost and enhancement of internship training (Burns, 2001). Small Scale

Enterprises are widely recognized across the world for their role in the social, political and

economic development. The importance of small business is mostly the ability to provide

reasonably priced goods, services income and employment to a large number of people

Kauffmann (2006). In Malawi, small scale enterprises play a vital role in a way that, they are

a source of income for many individuals who have failed to acquire employment elsewhere.

Though the Small Scale Enterprises have a large market of their goods from the large

population, they need to develop, manage and monitor their businesses effectively to enhance

their market performance for the increase of their profitability and business growth FinScope

(2012).Profitability and growth of small scale enterprises can be affected because of

inefficient financial literacy due to inability to keep complete accounting records and

awareness of managing business.

2

Most Small Scale Enterprises have often failed due to lack of knowledge and skills of

efficient financial management. It is important to encourage financial literacy among small

scale enterprises so as to enable them be able to supply complete and relevant financial

information needed to improve on decisions made by them, and to also enhance their growth

and profitability Vuong (2005).Above all, financial literacy also improves a business goal of

financial profit in which it has played a key role in the success and failure of our nation‟s

business for the past centuries. Companies and businesses are therefore being encouraged to

ensure that adequate and proper books of accounts are being kept so as to ensure reliability of

their financial statements. This will in the long run help improve their level of profitability

and growth. (Davidson, 2005).

According to Nelson and Onias (2011) Profit is being viewed as the life-blood of a profit

making business, organisation as well as a company hence the accounting bases, concepts

and principles must be adopted in order to capture and report all the relevant information to

ensure reliability accuracy in its measurement .Enikanselu and Oyende (2009) also made it

clear that no business can run effectively without the owner or employees being financially

literate and also having one form of accounting records or the other. It can therefore be

assumed that appropriate financial literacy is an important tool for successful management of

any business, either big or small. Furthermore financial literacy is being encouraged among

small scale enterprises so as to enable them be able to supply complete and relevant financial

information needed to improve on decisions made by them, and to also enhance their

profitability (Bernheim 2008).

In Malawi FinScope (2012) studied the effects of working capital management practices on

financial performance of small scale enterprises in Malawi. In his study, he established that

majority of business operators lack working capital management that affects financial

performance in which he did not have business management knowledge and further

suggested a study to unravel the impact of training on performance of business. Simeyo

(2011) and Osinde (2013) in their study on effects of working capital management and

business development services on SSEs established a positive relationship between business

training and performance. Entrepreneurs with training on business skills were found to

perform better than their counterparts with no business management knowledge.

3

1.2 Purpose of study

This study was conducted to determine financial literacy levels of Small Scale Enterprises

(SSEs) owners and to establish if there is a relationship between financial literacy and

profitability and growth of the small scale businesses.

1.3 Statement of the problem

Financial literacy is a global concern. Complicated financial products, low level of

awareness, lack of knowledge and skills about financial matters makes the need of financial

literacy significant according to Abor and Quartey (2010). The relevance of financial skills to

successful entrepreneurship remains subject for discussion. In a dynamic and uncertain

business environment entrepreneurs are faced with many challenges that can be overcome by

acquiring financial knowledge. As the adage goes “knowledge is power “and so financial

literacy is power. Ideally business education would give an entrepreneur an upper hand in

making financial or investment decisions when compared to a counterpart with no basic

financial education (FinScope 2012).Many studies have mainly dwelt on importance of

financial literacy and its effects on household or personal financial behaviour with little or no

theoretical and empirical study on financial literacy and entrepreneurial success (profitability

and growth). Therefore in this study we deep further in an attempt to find out whether

financial literacy has a positive relationship between profitability and growth of small scale

enterprises.

1.4 Research objectives

1.4.1 General objective

The general objective of this study is to determine the relationship of Financial Literacy on

the profitability and growth of Small Scale Enterprises in Mzuzu, Malawi. To achieve the

general objective, the following specific objectives will guide the study;

1.4.2 Specific Objectives

To determine the relationships between financial literacy and profitability of Small

Scale Enterprise

To determine the relationships between financial literacy and growth of Small Scale

Enterprise

To evaluate financial literacy levels on Small Scale Enterprise

To determine the profit trends on Small Scale Enterprise for past three years

4

1.5 Research questions

The research problem defined above leads to the following research questions:

i. What are the relationships between financial literacy, profitability and the growth of

Small Scale Enterprise?

ii. How is financial literacy affecting growth and profitability of Small Scale Enterprise

in Malawi?

iii. What are financial literacy levels of small scale enterprise owners?

iv. Have the SSEs been making profit for the past three years?

1.6 Significance of the study

The significance of this study is as follows:

i. Malawi government

Considering that the vast majority of Small Scale Enterprises(SSEs) are small who happen to

be in the informal sectors where entrepreneurs has no or only basic education, through the

results of this study government policy makers will see that basic financial education have a

bearing to SSEs success, hence need to emphasise on basic financial education . In addition,

government policy makers and its development partners may use the results of this study as a

basis for introduction of financial literacy programs amongst SSEs in a bid to stimulate

growth in the sector.

ii. Commercial bank and Micro Finance institution

Financial institutions such as commercial banks will understand risk profile of financially

literate entrepreneurs as compared to their illiterate colleagues. Furthermore, micro finance

institutions and NGOs will establish whether there is need to build financial literacy capacity

in an effort to reduce poverty through entrepreneurship.

iii. Academicians and Researchers

The study will add to the body of attention and knowledge to both researchers and

academicians who pursue to discover or examine relationship between financial literacy and

profitability and growth of small scale enterprise in Mzuzu or any other area in Malawi. In

addition, it will lay the basis of other studies to be carried out on the same topic. Furthermore,

it will also be a partial fulfilment of the requirement by the University of Eastern Africa-

Baraton for the award of a Bachelor‟s Degree in Business Administration.

5

1.7 Theoretical Framework

Entrepreneurship has been observed little more than an applied trade as opposed to an

academic area of study. For a long period of time there was no research accomplished

because it was thought that those who could not attend college would simply practice the

concept of new business start-up (Kuratko 2009). Due to Small Scale Enterprises critical role

in economic growth, many research studies have now been carried out to deepen

understanding of entrepreneurship. In this study the knowledge Spillover theory and

Behaviour and Personal Finance Education theories were being used.

1.7.1 The Knowledge Spillover Theory

In this theory the creation of new knowledge expands the set of technological opportunity.

The knowledge spillover theory of entrepreneurship holds individual characteristics as given

but rather lets the context vary. In particular, high knowledge contexts are found to generate

more entrepreneurial opportunities, where the entrepreneur serves as a channel for knowledge

spillovers. By contrast, poor knowledge contexts are found to generate fewer entrepreneurial

opportunities. By serving as a channel for knowledge spillovers, entrepreneurship is the

missing link between investments in new knowledge and economic growth. Thus, the

knowledge spillover theory of entrepreneurship provides not just an explanation of why

entrepreneurship has become more established as the factor of knowledge has emerged as a

crucial source for reasonable advantage, but also why entrepreneurship plays a vital role in

generating economic growth. Entrepreneurship is an important mechanism permeating the

knowledge filter to facilitate the spill over of knowledge and ultimately generate economic

growth. (Zoltan et al 2008).

1.7.2 Theory of Behaviour and Personal Finance Education

Braunstein and Welch (2002) pointed out that acquiring additional information can lead to

improved financial behaviour and it cannot be counted on to do so automatically. Research

has shown that individuals and households do not always act in ways consistent with their

best financial interests even when they have accurate financial information. Although there

are a few notable examples of programs with a behavioural component (e.g.,Lusardi et al.

2009; Sherraden et al. 2009), financial education has frequently been focused on enhancing

knowledge (or knowledge, attitudes, and skills) related to specific personal finance topic

areas, such as money management, banking, credit, saving, investment, insurance, and taxes

rather than behaviour (Coussens 2006; McCormick 2009; Vitt et al. 2005).When the

importance of behaviour is acknowledged, financial behaviour is often presumed to follow

6

from improved understanding of financial concepts. Definitions for the field reflect the

importance of action, but also commonly reflect an implied link between knowledge and

action. This theory will help in understanding the effect of financial literacy on entrepreneur‟s

behaviour and its relationship to business performance (Growth and profitability).

1.8 Conceptual Framework

A conceptual framework explained the study variables and the presumed relationships among

them (Miles et al, 1994). It also represented a synthesized and integrated way of

understanding of issues which enables the researcher to address the research problem

(Liehr et al, 1999).

Figure 1: Conceptual framework

1.9 Research Hypothesis

H0: There is a negative relationship between financial literacy, profitability and growth of

Small Scale Enterprises

H1: There is a positive relationship between financial literacy, profitability and growth of

Small Scale Enterprises

INDEPENDENT VARIABLE

DEPENDENT VARIABLE

Financial Literacy SSE Profitability

and Growth

Measurements

Record Keeping

Saving

Budgeting

Financial skills

Measurements

Sales

Expansion

Business Survival

Increase in Capital

Increase in # of

employees

7

1.10 Organisation of the study

The research study was conducted into five chapters as follow; Chapter one looked at the

background to the study and explained the concept of public infrastructure and taxation. The

chapter also presented a problem statement, purpose of the study, research questions and

hypothesis, significance of research, research limitation and assumption made in the course of

research. Chapter two outlined the literature review under the research. Chapter three looked

at research methodology and data analysis tools that were being used. Analysis of the data

collected and discussion of the research findings was done in chapter four. Chapter five

presented the discussion of the research results, conclusion and recommendations of the

study.

8

2.0 CHAPTER TWO

2.1 Literature Review

Introduction

This chapter contained a broad review of literature related to the issues and variables under

study. Literature review is defined as the use of ideas in the literature to justify the particular

approach to the topic, the selection of methods, and demonstration that the research

contributes something new to the overall body of knowledge or advances the research field‟s

knowledge-base (Hart, 2000).The study discussed an outlook based on three reviews; general,

specific and focused reviews.

2.1.1 General review

2.1.2 Small Scale Enterprises (SSEs)

In Malawi definitions of Small Scale Enterprises differs in accordance with employment

criteria. Small businesses are categorised in the following ways according to Finscope

(2012); 5-20 employees (small), 21-100 employees (medium) and 101- Above (Large). The

Ministry of Industry and Trade (MoIT) categorizes these businesses into „micro‟, „small‟,

„medium‟ and „large‟ based on employment criteria.

Small businesses are a vehicle for employment to the majority of citizens in Malawi.

FinScope (2012) indicated that 73% of people work in small businesses which employ less

than 50 workers. Moreover, 45% of people work in small businesses which employ less than

10 workers, as indicated by the Ministry of Industry and Trade (MoIT) in the report: Small

business development in Malawi (2009). Therefore, there is a great need to provide much

needed support to these developing small businesses to change them from informal economy

to formal economy of Malawi. It is important to ensure that these businesses have the

necessary skills, innovation and productivity to make them profitable and viable for a long

period of time.

Small Scale Enterprises commonly employ temporary and unpaid family members than full

time employees. As enterprises grow, the nature of employment becomes more full-time and

paid. Employment is the key determining factor for classifying Medium Small Scale

Enterprises in Malawi Cohen (2000).

9

2.1.3 The role of Small Scale Enterprises

The role of small scale enterprises in the technological and industrial development of any

nation justifies the need for greater attention to this sector. The foundation of growth in

developed countries of the world is usually attributed to the contribution of the small scale

enterprises.Creswell (2003) summarized the contribution of Small Scale Enterprises in

developing the economy. Small Scale Enterprises in Vietnam have:

i. Provided a large number of diversified products, representing 26 % of GDP and

30 % of industrial outputs.

ii. Created jobs for some 4.5 million people mobilized unused resources such as land,

capital, labour, and management skills into development of the economy and

contributing to increase of export volume.

Atkinson (2005) found that Small Scale Enterprises annually contribute approximately 31%t

of the total industrial output and create jobs and income for 4.2 – 4.5 million people.

According to Vuong (2005), during the period of 1991 – 1997, the private sector capitalized

almost USD3 million, created 3.5 million jobs and made a significant contribution to

Vietnam‟s GDP growth, in which 90 % come from SSE contribution, and only 10 % from

large firms.

2.1.4 Challenges and problems faced by SSEs in Vietnam

Small Scale Enterprises in Vietnam are faced with many problems irrespective of their

process of development. In their interview of 14 SSE manufacturers Ebashi, Sakai and

Trersky (2001) found the main challenges that SSEs in Vietnam have to face as listed below

by the order of serious concern.

i. Rise of funds– A large number of the interviewed Small Scale Enterprise owners

saw financial shortfalls as one of the biggest problems. They needed funds

primarily to finance plant and equipment investment and for securing working

capital to cover expenses involved in exporting their products until they could

receive payments from exporters.

ii. Export licenses– Companies who wanted to export goods directly to foreign

countries were required to obtain a direct export license. Companies who were not

eligible for the license had no choice except to export goods on consignment

through government enterprises. Even those who had the license were required to

visit Hanoi every year to renew their licenses.

10

iii. Industrial land– Interviews also found that in cities such as Hanoi and Ho Chi

Minh City, there was increasing concern for pollution problems because of the

mixture of residential and industrial areas. Moreover, urban areas were

increasingly short of industrial estates.

2.1.5 Problems of Small Scale Enterprises (SSEs) in Malawi

While there are various opportunities presented to people within the SSE sector, in Malawi

numerous challenges have been identified that are obstacles to progress and inhibiting the

development of small business. The following highlight some of the problems facing small

business owners (Barr and Minten, 2001).

i. Poor Accounting System: The accounting system of most small scale business

enterprises lack standard and does not make room for the assessment of their

performances. That creates opportunity for mismanagement, which therefore may

lead to enterprise failure.

ii. Inadequate Information Base: Small scale business enterprises are usually

characterized by poor record keeping and that result to lack of necessary

information which is required for planning and management purposes. This

usually affects the awareness of the sector.

iii. Poor Management Expertise: Management has always been a problem in this

sector as most small scale businesses do not have the required management

expertise to carry them through once the business start growing. The situation gets

compounded as training is not usually accorded priority in such establishments.

iv. Lack of Continuity: most small scale establishments are sole proprietorship and

such establishment often ceases to function as soon as the owner loses interest or

dies. This raises the risk of financing such business.

v. Poor Capital Outlay: inadequate capital outlay has often affected small scale

business adversely. Financiers often regard the sector as a high risk area and

therefore they feel doubtful about committing their fund to it.

11

2.1.2 Focus review

2.2.1 Financial Literacy

Financial literacy is defined as the understanding and knowledge of the financial principles

needed to make informed financial decisions and products which affect one's financial

welfare (Basu, 2005). It includes the ability to make informed judgments and to take effective

decision regarding financial matters (Worthington, 2005). Organisation for Economic Co-

operation and Development (2008) also said that financial literacy must involve not only the

investors but also the customers, both having the knowledge of financial products, concepts

and their ability to consider financial risks in their decision making and to make other

effective actions to improve their financial statements.

Financial literacy is essential in helping individuals to identify vital financial issues and

behaviours that support effective management of financial resources

(Hilgert and Hogath, 2003). It enables one to have the knowledge of critical financial

concepts for instance, types of interests, risks and returns of investments, diversification of

investments, among others. Hence it prepares the ability to understand important financial

products needed in life including various bank products, basic investments, ideas and saving

plans. It improves how individuals are able to examine and appreciate money and financial

issues. This aids greatly in making effective financial decisions regarding financial

managements (Greenspan, 2001).

Financial literacy not only enables one make decisions while confident and sure, but also

assists individuals to respond knowledgeably to changes that affect their everyday financial

wellbeing including events in the general economy like collapse of financial markets, rising

unemployment and the threat of rapid inflation (Hilgert and Hogath, 2003). Hereafter for any

financial system to be effective, financial literacy is required in order to avoid penalties and

to take appropriate actions to improve the firm's present and future conditions

(Quartey, 2010).

Having the numeracy and capacity to do calculations, understanding the financial systems

and understanding the risks of financial decisions are some of the fundamental concepts

about financial literacy. Common measures of financial literacy can be in form of money

basic knowledge, financial management, debt, savings, insurance and investment literacy

(Lusardi, and Alessie 2007).

12

2.2.2.2 Levels of financial literacy

As argued by Mandell (2008), there should be more emphasis on rising up the level of

financial literacy as this would help in achieving many objectives of organizations such as

increase in profitability and growth. Complicated financial products, low level of awareness

and lack of knowledge about financial matters makes the want of financial literacy

noteworthy.

The level of financial literacy differs from individual to individual. Gender gap also plays an

important role is deciding the level of financial literacy. A woman‟s decision or relationship

with money is often determined by her personal life experience. Emotion, money and family

are interlinked in the life of a woman (Creswell, 2003). Lack of equipped access of

consistent information to make informed decision leads to low level of confidence and

knowledge about financial issues. Life changes like new employment, divorce or separation,

demise of the partner are some of the stressful stimulators in an individual‟s life Hilgert and

Hogath (2003).

2.2.2.3 Measuring financial literacy

Financial literacy such as record keeping, budgeting, personal finance and savings were

viewed to be more important to lower-income individuals. This suggests that financial

educators should not only teach how to save or ways to save, but also the why saving is

important (Rhine and Comeau, 2000). In this study the researcher will also use these four

topics to measure the financial literacy of micro entrepreneurs.

Record keeping is a fundamental skill a business person must possess. It is the source of

important information vital to critical decision-making, and responsible for minimizing risks

(Cohen and Stack, 2009). This measure of financial literacy suggests the effective record

systems considered to be critical in business operation since business owners cannot rely on

their memory to summarize all transactions of the day.

Savings is another component which serves as economic security and also for accumulation

of wealth for an improved living standard (Braunsten and Welch, 2002). However, micro

entrepreneurs are lack of necessary discipline and willingness in advancing their business

skill including saving ethics (Karides, 2005).

13

The financing skill, the third measure of financial literacy, is the ability to obtain capital

from outside sources with minimal cost and payoff obligation. Assibey (2010) found out that

most micro entrepreneurs are illiterate with respect to business financing. Without knowing

that their obligation is getting bigger because of interest and high debts will lead to business

reversal Worthington (2004). Budgeting, on the other hand, refers to the expenditure planning

and cash flow analysis which is very important to the success of the business operation and

processes Bragg and Burton (2006). However, Torres (2008) found that small business

owners are not concerned about budgeting; their concern is more on the cash flow. Lusardi,

(2008) also argued that financial literacy differs between men and women. Males are more

knowledgeable financially than females and lastly those who have low financial literacy have

low education.

2.2.3 Specific review

2.2.3.1 Business Growth Potential of Small Scale Enterprises (SSEs)

According to Bains (2011), business growth potential refers to the state of the business

having the potential to progress far. This potential progress can be measured by increase in

capital, increase in number of employees, sales, business survival and expansion in terms of

branches and product lines. Bains (2011) continued saying that, in order to realize that

business potential growth, there is a need for the government to create conducive

environment for Small Scale Enterprises. For instance, simplifying loan conditions provide

access to finance, create markets for products, assist in the creation of business groups, ease

the regulations controlling business, reform tax system, improving skills and training and

provide business development services.

Therefore to create conducive environment for owned enterprises in Malawi, microfinance

institutions should revisit its policy to ease the credit access and there should be a room to

provide credit without group formation if the customer has an equivalent asset for collateral

as also suggested by Finscope (2012).

2.2.3.2 Small Scale Enterprise (SSE) Profitability

Defining Profitability

According to Jaggi and Considine (2000), profitability is a crucial indicator for determining

the financial position of the firm. The firm is considered financially weak when its

profitability is sliding or the profitability is weak compared to other firms in the industry. In

their study, they also used return on assets as the indicator to reflect profitability.

14

Importance of Profitability

Profitability is one of the most important objectives of financial management because one

goal of financial management is to maximize the owner‟s wealth (McMahon, 2001). Thus,

profitability is very important in determining the success or failure of a business. At the

establishment stage, a business may not be profitable because of investment and expenses for

establishing the business. When the business becomes mature, profits have to be produced.

Due to the importance of profitability, Edmister (2010) among other researchers have

suggested that small firms need to concentrate on profitability. Jen (2004) found profitability

to be a significant determinant of a small firm‟s credit risk. Thomas and Evanson (2000)

stress the aim of a business is not only the generation of sales, but also generation of profits.

Profit is especially important because it is necessary for the survival of a business. Low

profitability contributes to under-capitalization problems because it leads to fewer dollars as

retained earnings and therefore to a reliance on external capital Davidson and Dutia, (2005).

2.2.3.3 Measuring profitability

One of the most difficult attributes of a firm is to measure is profitability (Ross 2001). In a

general sense, accounting profits are the difference between revenues and costs. However, the

problem with accounting-based measures of profitability is that they ignore risk. In the

economic sense, a firm is profitable only if its profitability is greater than its costs and when

investors can achieve independently in the capital market. In their text, Ross et al. (2001)

suggest some methods to measure profitability including profit margin or return on sales,

return on assets, and return on equity.

Profit margins are computed by dividing profits by total operating revenue and thus

express profits as a percentage of total operating revenue.

Return on assets is the ratio of income to average total assets, both before tax and

after tax, and measures managerial performance.

Return on equity is defined as net income divided by average stockholders‟ equity,

and shows profit available for stockholders.

15

Cohen (2000) stated that measures of profitability are essential in any business. In his text, he

indicated many different ratios to measure profitability of the business. They included asset-

earning power, return on the owner‟s equity, net profit on sales, and return on investment

Asset earning power is determined by the ratio of earnings before interest and tax to

total assets. It indicates how much operating profit each dollar of total assets earns.

Return on the owner‟s equity is computed by dividing net profit by average equity,

and shows return that the business received in exchange for investment.

Net profit on sales is determined by the ratio between net profit and net sales, and

measures the difference between what the business takes in and what it spends in the

process of doing business.

Return on investment is simply computed by dividing net profit by total assets. This

measure is very useful for measuring profitability.

2.2.3.4 Factors influencing profitability

Based on the profitability measures presented by Weinrauch (2000), the main factors

influencing profitability include revenue, costs and capital. In general, revenue is determined

or influenced by marketing, sales management and new product development, whereas cost

and capital are mainly affected the financial management practices. When analysing factors

affecting profitability, Burns (2001) found out that profitability could be affected by many

different economic factors. Lev (2005) also added that variability of profit measures over

time is affected by type of product, degree of competition, degree of capital intensity as well

as firm size.

The effect of size on Small Scale Enterprise profitability was also discussed by Kirchhoff and

Kirchhoff (2000), in which they examined family contributions to productivity and

profitability in small businesses. The evidence showed that family members are more

productive than other employees. However, in his study family member‟s productivity did

not increase profitability his results showed the opposite. It was noted that as paid family

labour increases, profitability also decreases. As family member participation increases, wage

and salary expense also increase which affects percentage of revenue, thereby causing profit

as a percentage of sales to drop. Generally, there are many factors affecting Small Scale

Enterprise profitability. However, there is need to analyse how financial literacy is affecting

the profitability and growth of Small Scale Enterprises.

16

2.2.3.5 Relationship between Financial literacy growth and Profitability

The use of growth as a measure of firm performance is generally based on the belief that

growth is an originator to the attainment of sustainable competitive advantages and

profitability (Markman, 2002). According to Cohen (2000), larger firms have higher rates of

survival and may have the benefits of associated economies of scale. The alternative view is

that fast growing firms may encounter difficulties associated with growth that leads to

reduced profitability and perhaps financial difficulty. Overall, it is difficult to imagine

sustained growth without profitability. Without funding growth through retained earnings, the

firm must rely on additional debt or equity finance.

The relationship between growth and profitability is therefore an important consideration and

to date there has been little agreement on the relationship between these two measures.

Evanson (2002) considered that rapid growth could lead to higher profitability based on

evidence that new firms become more profitable when they enter markets quickly and on a

large scale. On the other hand, Thomas and Evanson (2002) concluded that the pursuit of

high growth may be minimally or even negatively correlated with firm profitability. Burns

(2000) found that firm profitability was correlated with sustainable growth and sales growth

and profitability were not correlated.

Furthermore Marris (2010) considered the relationship between these measures and suggests

that there is an identifiable growth profit trade-off, where in order to finance growth, the firm

must forego profits. Cowling (2004) investigated this relationship between growth and

profitability and found little evidence of the growth versus profit trade-off. He suggested that

there is potential for a cumulative type effect whereby profits provoke growth and growth

causes future profit that allows some firms to continually face increasing returns to scale.

17

3.0 CHAPTER THREE

3.1 RESEARCH METHODOLOGY

3.2 Introduction

This chapter outlined the methods that were adopted by the study in obtaining information on

the relationship between financial literacy and profitability as well as growth of Small Scale

Enterprises in Mzuzu City, Malawi. The chapter also described and explained the research

instruments that were used in the study. The chapter is structured into research design, target

population, data collection and data analysis techniques.

3.2.1 Research Design

A research design is the logical sequence or blue print that connects the empirical data to a

study‟s initial research questions and, ultimately, to its conclusions (Yan, 2003). This study

was conducted using descriptive research design as it seeks to determine the level of financial

literacy among Small Scale Enterprise.The design was appropriate as it enabled

understanding of the exact nature of the two variables of the study; financial literacy and

profitability and growth of SSEs in Mzuzu City, Malawi. Moreover it enabled the researcher

to be able to describe the characteristics of these variables.

3.2.2 Research Population

The study target population consisted of owners of SSEs operating within Mzuzu City. For

data collection purposes, the target population was estimated using the estimated sample size

based on a proportion of the population. According to the formula 80% proportion of the

population having the characteristic was being used in the study.

3.2.3 Research Sample

Sample Size Calculation: The sample size was calculated based on the sample required to

estimate a population mean with an approximate 95% confidence level by using the

following formula; = pq

Where : = required sample size

p = proportion of the population having the characteristic

q = 1- p

d =the degree of precision (margin of error that is acceptable)

Therefore; Estimated proportion of population was at 95% confidence level, then p= 0.8 and

then q= 1- 0.8 and margin of error to be accepted in this study was 10% so d= 0.1

18

= (0.2) (0.8)

= 3.8416*0.16

0.01

= 61

A sample of sixty one small scale enterprises will randomly be selected in Mzuzu city,

Malawi.

3.2.4 Sampling Techniques

This study used simple random sampling technique to select a sample of 61 SSEs. The

sample size was manageable in terms of time and cost and satisfactory according to

Chamwana (2015) recommendation. The study respondents were the SSE owners who are

expected to be in a position to give credible information.

3.2.5 Research Area

The study was conducted in Mzuzu city located in the Northern Region of Malawi. The

researcher chose the city to be an area of study because she believes that, data will be found

easily, it is an area where most of the economic researches are frequently done and it is also

where most concerned individuals are located. The study involved business owners,

Managing Directors, Managers and some employees only.

3.2.6 Design of Research Tools (Instruments)

Due to the nature of this study, primary data was appropriate; the researcher used

questionnaire as a tool for conducting research with respondents. These questionnaires were

formed particularly to promote accuracy and avoid biasness simultaneously. The

questionnaire had both open and closed ended questions. The study used primary data which

was collected from semi structured questionnaires.

The structured questions assisted the researcher for easier analysis as they will be in

immediate usable form and easily analysed using quantitative measures; the unstructured

questions was used to encourage the respondent to provide an in-depth and felt response

without feeling held back in disclosing information thereby providing data that was

qualitative in nature. Questionnaires were adopted by the study as they were useful in

obtaining objective data since the respondents were not manipulated in any way by the

researcher.

19

3.2.7 Data Collection Methods

Primary data was used for the study. Primary data is mainly used as it enables the researcher

to obtain the required data for the study (Cooper and Schindler, 2011). The data was collected

using questionnaires. The questionnaire consisted structured questions, un-structured

questions with space provided for selection of choices and explanatory answers. Alessie and

Lusardi (2011) declares that close ended questions have the advantage of collecting viable

quantitative data while open-ended questions allow the respondents freedom of answering

questions and the chance to provide in-depth responses. The questionnaires were

administered through drop and pick. The questions in the questionnaire were short and

precise so that the respondents could not to have challenges in filling them.

20

4.0 CHAPTER FOUR

4.1 DATA ANALYSIS, RESULTS AND INTERPRETATIONS

4.2 Introduction

In this chapter the researcher analyzed data which was collected from 50 Small Scale

Enterprise in Mzuzu City, Malawi. Profitability and growth are measured by scores from

answers to the questions that are related to determine the level of them. Financial literacy data

is measured by scores obtained from financial literacy questions that tests knowledge in

financial market. The researcher made use of SPSS, Regression and frequency analysis to

present the result in tables and figures.

4.2.1 Rate of Respondents

From a sample size of 61, 50 samples were collected while 11 samples were discarded for

having no useful information. Out of the 11 samples, 8 questionnaires were not completely

filled by respondents and 3 respondents refused to give their business information. The total

rate of retrieved sample was 82 % and therefore considered successful.

Table 4.1: Summary of sample and retrieval rate

Sample Size Questionnaires

Distributed

Questionnaire

retrieved

Total

percentage

SSEs 61 61 50

Total 82%

Figure 4.2: Summary of sample and retrieval rate

61% 61%

50%

82% 0

10

20

30

40

50

60

70

Fre

qu

ency

(%)

SUMMARY OF SAMPLE AND

RETRIEVAL RATE

21

4.2.2 GENERAL INFORMATION

4.2.2.1 Gender

To avoid biasness the researcher distributed the questionnaires randomly. Information

gathered from the study as shown in Table 4.2 and Figure 4.2 shows that 27 respondents were

males representing 54% of the sample size whereas 23 respondents were females representing

46% of the sample size.

Table 4.3: Gender

Figure 4.4: Gender

Lusardi and Mitchell (2008) said that gender differences play an important role in deciding

individuals‟ levels of financial literacy. They also argue that men are more likely to perform

better than women on various literacy tests. According to the study the results shows that

both male and female entrepreneurs participated in the study hence gender bias was being

avoided. The results show that the majority of respondents were Male representing 54%

meaning that more small scale businesses in Mzuzu are being managed by Males than

women.

54%

46%

40

45

50

55

Male Female

freq

uen

cy (

%)

Gender

Gender

Description Frequency %

Male 27 54.0

Female 23 46.0

Total 50 100.0

22

4.2.2.2 Educational Level of Small Scale Business Owners.

The researcher was interested in the level of education to determine the skills, expertise and

the competence level of the respondents both in answering the questionnaire and in managing

the finance of their businesses. Information gathered from the study indicated that 13

respondents holds JCE/MSCE, 21 respondent holds diploma and 16 respondent holds a

degree representing 26%, 42% and 32% respectively. This shows that all small scale

enterprise owners have at least basic education with majority holding a diploma.

Table 4.2: Level of Education

Figure 4.3: Level of Education

According to Lusardi and Mitchell (2006).Level of education is positively correlated with

financial literacy, they argued that those individuals who have completed university or

college degree are more likely to be financially knowledgeable than those with low education

level. Therefore it can be argued that above 74 % (diploma and degree holders) of the small

scale businesses in Mzuzu City have the ability to keep proper financial records and prepare

financial reports to manage the finances of their business.

26%

42%

32%

0

10

20

30

40

50

JCE/MSCE Diploma Degree

Fre

qu

ency

(%)

Level of Education

Level of Education

DESCRIPTION FREQUENCY %

JCE/MSCE 13 26.0

Diploma 21 42.0

Degree 16 32.0

Total 50 100.0

23

4.2.2.3 Nature of the Business

Table 4.3 represents the distribution of the sample of responding firms in terms of nature of

the business. 64 % of businesses in the study sample are service providers, seventeen % are

manufacturing while one percentage is merchandising.

Table 4.3: Nature of Business

Figure 4.4: Nature of the Business

The study shows that more small scale enterprises in Mzuzu City are service providers.

4.2.2.4 Position in the Business

The researcher was much interested in the position the respondents hold in a business to

make sure that data is collected from people who are aware with the business operational.

The researchers target was to the owners. Information gathered from the study indicated that

31 respondents are owners, 12 respondents are Directors, managers are 6 and 1 respondent

was an employee representing 62%, 24% ,12% and 1% respectively.

64%

34%

2%

100%

0

20

40

60

80

100

120

Fre

qu

ency

(%

)

Nature of the business

Nature of the Business

Description Frequency %

Service provision 32 64.0

Manufacturing 17 34.0

Merchandising 1 2.0

Total 50 100.0

24

Table 4.4: Position is the Business:

Figure 4.5: Position in the Business

This indicates that more small scale businesses in Mzuzu are being managed by the owner

representing 62% who happens to be responsible for making financial decisions and

controlling the business. Training owners of the business will be a great advantage to the

contribution of business operation since most of the work will be done by them. It is therefore

necessary for the owners of the business to have financial literacy for them to know how to

handle the business and increase their profitability and growth.

4.2.2.5 Years in the Business

The study aimed at establishing the duration of the SSEs based on the number of years they

have been operating. The findings show that 30% have been operating for a period of 5-8

years, 30% for less than 2 years, 26% for 2-4 years, 8% for less than 2 years and 6% for more

than 10 years as shown in figure 4.5.

62%

24%

12%

2%

0

10

20

30

40

50

60

70

Owner Director Manager Employer

freq

uen

cy (

%)

Position in the Business

Position in the Business

Description Frequency %

Owner 31 62.0

Director 12 24.0

Manager 6 12.0

Employer 1 2.0

Total 50 100.0

25

Table 4.5: Years in the Business

Figure 4.6: Years in the Business

In summary, this indicates that there is an increase in the number of entrepreneurs venturing

in SSEs around Mzuzu Township. Despite this, more small scale businesses in Mzuzu do not

reach more than 10 years‟ operating according to the results on the figure above. It may be

due to lack of financial literacy on how to manage a business or some other various reasons

that makes them not to exist for more than 10 years.

4.2.2.6 Number of employees

The study sought to determine the number of employees in the SSEs. The findings as shown

in table below show that 25 (50%) had 4-5 employees, 13 (26%) had 6-7 employees, 12

(24%) had over 7 employees while no SSE was established to have more than 20 employees.

30% 26%

30%

8% 6%

0

5

10

15

20

25

30

35

Less than 2

years

2-4 years 5-8 years 9-10 years More than

10 years

Fre

qu

ency

(%

)

Duration of Business

Duration of the Business

Description Frequency %

Less than 2 years 15 30.0

2-4 years 13 26.0

5-8 years 15 30.0

9-10 years 4 8.0

More than 10 years 3 6.0

Total 50 100.0

26

Table 4.6: Number of Employees

Figure 4.7: Number of Employees

Malawi‟s definition of Small Scale Enterprises differs in accordance with employment

criteria. Finscope (2012) categorised SSEs as follows; 5-20 employees (small), 21-100

employees (medium) and 101- Above (Large).From the results in figure 8, all the 50

respondents have employees between 4 to 10 and not more than 20 employees. This implies

that most small scale businesses in Mzuzu are under a category of small. Number of

employees may also tell the growth of the business in such a way that, when a business is

having a lot of employees it shows that the owner is able to make more money which meets

the salary expenses of them.

4.2.2.7 Additional Employees

Table 4.8 reports the number of employees added within the operating business. Twenty five

respondents agreed representing 50%, 20 respondents denied representing 40% and 5

responded said that they add but replacing other employees that have resigned or those that

have been downsized.

Description Frequency %

4-5 25 50.0

6-7 13 26.0

Over 7 12 24.0

Total 50 100.0

50%

26% 24%

0

10

20

30

40

50

60

Fre

qu

ency

(%)

Number of Employees

Number of Employees

27

Table 4.7: Employees Added

Figure 4.8: Employees Added

The study shows that most of the businesses added employees during their business

operational. With pressure in work, looking for expert to manage the business as two reasons

most entrepreneurs gave implies that there is growth in some SSEs that made them to add

employees in order to overcome pressure on work and they also have financial literacy since

someone to know that the business needs to be operated by someone who has knowledge and

skills (Expert) they financial literacy has to be there. When a business has been operating for

more than 2 years but did not add any employees it gives a doubt on the growth of the

business that means they do not have pressure on them or they cannot manage to meet salary

expenses.

4.2.3 MEASURING SMALL SCALE PROFITABILITY

This subsection analyses profitability on Small Scale Enterprises in relation to Level of

knowledge, skills necessary to make sound financial decisions. This will help to determine

how financial literacy affects profitability of SSEs. Table 4.9 shows that businesses from 32

respondents are profitable representing 64% while 18 respondents they make losses

representing 36% in the sample size.

40%

50%

0

10

20

30

40

50

60

Yes No

Fre

qu

ency

(%)

Response

Employees Added

Description Frequency %

Yes 25 50.0

No 20 40.0

Constant 5 10.0

Total 50 100.0

28

Table 4.8: Profit made for the past 3 years

Figure 4.9: Profit made for the past 3 years

In Figure 10 most of the Small Scale enterprises show that they are making profit in their

business representing 64% which is a good figure to argue that despite the size of the

business, owners at least have something in return as in profits.

4.2.3.1 Profit trends of the Small Scale Businesses

Although 64% agreed that they are making profit in their businesses table 4.10 shows the

profit trends of SSEs as follows; 20% said they have a rise in their profits for the past 3 years,

34% said that they have a decline in the profits while 31% have a constant profit trend and

7% said they are not sure.

Table 4.9: Profit trend

64%

36%

0

20

40

60

80

Yes No

Fre

qu

ency

(%)

Response

Profit made for the past 3 years

Percent

Description Frequency %

Yes 32 64.0

No 18 36.0

Total 50 100.0

Description Frequency %

Rising 9 28.0

Declining 11 34.0

Constant 10 31.0

Not Sure 2 7.0

Total 32 100.0

29

Figure 4.10: Profit trend

This implies that even though 64% agreed that they are making profits, there profit trends is

not that of impressing since 34% complained that their profits are declining and about 31%

have a constant profit trend. This may be due to lack of financial literacy on how to manage

the profits they have in the business or they encounter other expenses in the business. The 7%

of the respondents who responded that they are not sure clear shows that they lack financial

literacy and cannot handle a business. This is because an entrepreneur cannot stay in business

without knowing whether he or she is making profit or not.

4.2.3.2 The trend in the losses

The Table 4.11 below shows the losses trend of respondents out of 50 respondents, 18

respondents representing 100% said they are running a business but they are not making

profits. 6 respondents representing 33.3% said that their losses are increasing, 10 respondents

representing 55.6% responded that their loss is decreasing and 2 of the respondents

representing 11.1% responded that their losses are constant.

Table 4.10: Losses trend

28%

34% 31%

7%

0

5

10

15

20

25

30

35

40

Rising Declining Constant Not Sure

Fre

qu

ency

(%)

Profit trend

Profit trend %

Rising

Declining

Constant

Not Sure

Description Frequency %

Rising 6 33.3

Declining 10 55.6

Constant 2 11.1

Total 18 100.0

30

Figure 4.11: Losses trend

This implies that not all the small scale businesses are making profits hence some small scale

enterprises are also making losses. Most of the entrepreneurs complained that they have a lot

of expenses such as Lent and for them to raise the prices in order to meet the expenses

becomes a problem since there in a competitive world. They only look at winning customers

on the market not considering how they can improve and increase their profits. This shows

that they lack financial literacy on how to handle their business.

4.2.3.3 Area of investing profits

Table 4.12 below shows the agreement level of the respondents on whether they invest the

profits into the business or not. 20 respondents said they invest the profits representing 62.5%

and 12 respondents denied representing 37.5%.

Table 4.11: Investment of Profits

33.30%

55.60%

11.10%

0

10

20

30

40

50

60

Rising Declining Constant

Fre

qu

ency

(%)

Losses trend

Losses trend for the past 3 years

Percent

Description Frequency %

Yes 20 62.5

No 12 37.5

Total 32 100.0

31

Figure 4.12: Investment of Profits

From the figure 4.13 above 65.5 % agreed that they invest the profits, this implies that they

are aware of how to manage the business. For an entrepreneur to invest the profits it takes one

to have skills, knowledge, attitude and behavior necessary to make sound financial decisions.

4.2.3.4 Profit Investing Areas

Table 4.13 below: shows the results of how the profits are being used by assessing the

knowledge of an entrepreneur on how he or she manages the profits. 19 of the respondents

representing 59.4% responded that they invest the profits back into the business, while 8 of

the respondents said that they use the profits for their personal projects and 5 respondents

representing 15.6% responded that they use profits by starting a new business.

Table 4.12: Area of investing profits

62.50%

37.50%

0

10

20

30

40

50

60

70

Yes No

freq

uen

cy(%

)

Response

Investment of Profits Percent

Yes

No

Description Frequency %

Investing back into business 19 59.4

Personal projects 8 25.0

Starting a new business 5 15.6

Total 32 100.0

32

Figure 4.13: Area of investing Profits

This indicates that 24 respondents representing 75% small scale businesses in Mzuzu shows

that they have the knowledge on how to use the profits in a business. Investing back into a

business can help the business have an increase in inventory since the money will be used

back into the business and this will indicate growth. Those people who invest back said that

this helps them to have an increase in capital at the same time increase in goods and services

provided. It becomes easier to identify profits and losses in a business when you are investing

back. Those respondents who use profits for personal projects show that they lack financial

literacy in them since they do not know how to use profits from the business.

4.2.4 BASIC FINANCIAL LITERACY

4.2.4.1 Training on financial reporting

According to Lusardi, and Alessie (2007), Entrepreneurs are required to have knowledge and

skills on how to handle the business in order for them to make profits and grow. The

respondents were asked whether they have ever been trained on any related business course.

Table 4.14 shows the results obtained by the researcher as follows; 37 representing 74% said

yes while 13 representing 26% denied.

Table 4.13: Training on business

Description Frequency %

Yes 37 74.0

No 13 26.0

Total 50 100.0

59.40%

25%

15.60%

0

10

20

30

40

50

60

70

Investing back

into business

Personal

projects

Starting a new

business

freq

uen

cy(%

)

Area of investing profits

Area of investing profits Percent

Investing back into

business

Personal projects

Starting a new business

33

Figure 4.14: Training on Business Course

Lusardi and Alessie (2007) argued that someone to have numeracy and capacity to do

calculations, understanding the financial systems and understanding the risks of financial

decisions he or she must have financial literacy and can be obtained through training. 74% of

respondents have financial literacy and 64% are making profits in their businesses, therefore

it can be argued that those entrepreneurs who are financial literate are making profits in their

business than those who are illiterate on financial matters. On the question of how training

helped the business most of respondent said that the application they use in business is

obtained from the training.

4.2.4.2 Owner’s monthly salary

Table 4.15 below presents the results of respondents on whether they give themselves salary

or not in every month end. The results show that 12 respondents said yes representing 24%

while 38 respondents denied representing 76%.

Table 4.14: Owners monthly salary

74%

26%

0

10

20

30

40

50

60

70

80

Yes No

Fre

qu

ency

(%)

Response

Training on Financial Courses

Yes

No

Description Frequency %

Yes 12 24.0

No 38 76.0

Total 50 100.0

34

Figure 4.15: Owners monthly salary

According to Kolter (2014) accounting principles are being recommended to be applied in

any business transactions one of them is Business Entity principle which states that the

transactions associated with a business must be separated from personal affairs. This can be

argued that most of the owners of small scale businesses in Mzuzu do not apply business

entity principle. This is more dangerous since the owner sometimes may think the business is

making losses not knowing the money is used on other things apart from the business itself.

There should be a gap between the owner and Business to someone who has financial literacy

since he or she will be aware of how important it is.

4.2.4.3 Sources of income for emergency

Table 4.16 below: shows the results of how the entrepreneurs manage personal emergencies

together with their businesses. 38 of the respondents representing 76% responded that their

source of income for emergency is from business while 12 of the respondents representing

24%.

Table 4.15: Sources of income for emergency

Description Frequency %

From Business 38 76.0

Personal Savings 12 24.0

Total 50 100.0

24%

76%

0

10

20

30

40

50

60

70

80

Yes No

Fre

qu

ency

(%)

Response

Owner’s monthly salary Percent

35

Figure 4.16: Sources of income for emergency

The figure 4.17 shows that most of the business owners use the finances from the business on

their personal emergencies.76% of the respondents show that they do not have salary from

their business and 76% of them also said that they use income from the business for personal

expenses. This implies that there is a problem in the business owners on how to manage the

business due to lack of financial literacy or they have personal problems since they depend

much on the business than personal savings.

4.2.4.4 Financial plan and budget practices

To determine financial plan and budget practices, respondents were asked questions related to

frequency of preparing and monitoring financial budgets, kinds of financial budgets prepared.

The percentage of SSEs in the sample that monitors their plans and prepared budgets is

presented in table 4.17 below. Out of 50 SSEs owners asked 38 representing (76%) had

prepared sales budgets and have plans for the business, representing the highest percentage,

while only 12 (24%) do not prepare any budget balance sheets or financial statement. In line

with prior expectations, only 24 % of SSEs in the sample do not prepare any kind of financial

budgets.

Table 4.16: Plan for the business

76%

24%

0

10

20

30

40

50

60

70

80

From Business Personal Savings

Fre

qu

ency

(%)

Sources of Income

Sources of income for emergency

Percent

From Business

Personal Savings

Description Frequency %

Yes 38 76.0

No 12 24.0

Total 50 100.0

36

Figure 4.17: Plan for the business

This implies that a majority of SSEs in the sample accept that they prepare financial budgets

during business operations and monitor it regularly. This is consistent with the reported

situation that SSEs in Mzuzu prepare budget balance sheets and other statements though most

of them do not follow accounting principles when preparing.

4.2.4.5 Monitoring financial plan and budget prepared

Although plans and budgets are being made in business they also need to be monitored

regularly to improve its accuracy and be sure if they are being used in the business. Table

4.18 shows that 25 of the respondents representing 65.8% do monitor their plans and budgets

regularly while 13 respondents representing 34.2% do not.

Table 4.17: Monitoring plan/financial budget

76%

24.%

0

10

20

30

40

50

60

70

80

Yes No

Fre

qu

ency

(%)

Response

Plan for Business Percent

Description Frequency %

Yes 25 65.8

No 13 34.2

Total 38 100.0

37

Figure 4.18: Monitoring plan or financial budget

The results from figure 19 show that even though 76% of the respondents from figure 18 said

that they make financial plans and budget not all of them manage it properly. The 34.2%

implies that they lack knowledge and skills on how to manage financial plans and budgets

which can contribute to poor performance of the business since following your plans and

budget in a business is much important it helps one to use income in the right place and at the

right time.

4.2.4.6 Consequences of Financial illiteracy on Small Scale Businesses

Financial literacy such as record keeping, budgeting, personal finance and savings were

viewed to be more important to lower-income individuals. This suggests that financial

educators should not only teach how to save or ways to save, but also why saving is

important Atkinson (2005).

4.2.5 BASIC GROWTH OF THE BUSINESS

Respondents were asked on the potential progress of the business in the coming years. Table

4.19 below presents the results of growth rate for the past 3 years, 2% representing 4.1% of

respondents responded that they have exceptional growth on their business, 23 respondents

representing 46.9 % said that they have satisfactory growth while 10 respondents

representing 20.4% responded that they have negative growth and 14 (28.6%) of respondents

said that they have no growth.

65.8%

34.2%

0

10

20

30

40

50

60

70

Yes No

Fre

qu

ency

(%)

Response

Regularly monitoring of the plan

Percent

38

Table 4.18: Growth rate

Figure 4.19: Growth rate

The 46.7% being the highest percentage implies that there is an increase in the business

survival.

4.2.5.1 Access to financial Assistance

When respondents were asked whether they get assistance from financial institutions in terms

of loan.13 respondents representing 26.5% agreed while 36 respondents representing 73.5%

denied. This shows that the majority do not have access to receive financial assistance from

lending institutions.

Table 4.19: Access to Loan:

4.1%

46.9%

20.4%

28.6%

0

10

20

30

40

50

freq

uen

cy(%

)

growth rate for the past 3yrs

Growth rate for the past 3yrs

Description Frequency %

Exceptional Growth 2 4.1

Satisfactory Growth 23 46.9

Negative Growth 10 20.4

No Growth 14 28.6

Total 49 100.0

Description Frequency %

Yes 13 26.5

No 36 73.5

Total 49 100.0

39

Figure 4.20: Access to Loan

Cohen (2001) concluded that access to credit is considered to be an important factor in

increasing the development of SSEs. It can therefore be argued that 73.5% of the respondents

who had insufficient access to credit may have negative consequences for their businesses.

Although others agreed that they have access to loans, majority also added that they had to go

through difficult processes in order for them to have access to it. When inquired for the

process they go through in getting the assistance, majority said that they had to present

comprehensive financial statements, business plan and provide collateral security in which

the 73.5% in figure 21 failed to meet this. This implies that majority of the entrepreneurs in

SSEs lac financial literacy which affects the profitability and growth of their businesses.

4.2.5.2 Factors considered when acquiring a loan

Table 4.21 below shows that 5 of the respondents representing 38.5% responded to all the

above factors, 3 respondents representing 23% responded that they only consider rate of

interest when acquiring loan while 2 respondents representing 15.4% said repayment amount

is what they consider and 1respondent representing 8% said he considers payment period and

cost of loan.

Table 4.20: Factors on acquiring loan

26.5%

73.5%

0

20

40

60

80

Yes No

freq

uen

cy(%

)

Response

Access to loan Percent

Yes

No

Description Frequency %

Payment Period 1 8.0

Repayment amount /month 2 15.4

Rate of interest 3 23.0

Cost of loan 1 8.0

All the above 5 38.5

Total 13 100.0

40

Figure 4.21: Factors considered before acquiring loan

4.2.5.3 Perception of Debt burden

The respondents were asked to indicate their level of agreement with each statement in the

table to best describe their current debt position. Table 4.24 shows the results of the

respondent such that, 45 of entrepreneurs representing 90% denied having too much debt, 3

entrepreneurs representing 6% were neutral, 2 entrepreneur representing 4% agreed of having

too much debt and find it difficult in paying it off. On the right amount of debt 44 of the

respondents representing 43.8% denied having the right amount of debt, 2 entrepreneurs

representing 4.2% were neutral and 2 entrepreneurs agreed of having right amount of debt

and they have no problem with it. Lastly, 45 respondents representing 91.8% denied having

too little debt right now, 3 of the respondents representing 6.1% are on the neutral side while

1 respondent representing 2% agreed that he has too little debt right now and wish to get

more.

A few entrepreneurs were allowed to acquire loan since they had financial reports. This

implies that financial report is a major tool in securing financials supports from the

institutions; private and government.

8%

15.40%

23%

8%

38.50%

0

10

20

30

40

50

freq

uen

cy(%

)

Factors considered

Factors on acquiring loan

Percent

Payment Period

Repayment amount

/month

Rate of interest

Cost of loan

All the above

41

Table 4.21: Perception of debt burden

4.2.5.4 Relationship between financial literacy and profitability

To assess the relationship between financial literacy and profitability a regression analysis

was done, Table 4. 23, 4.24 and 4.25 shows the results.

Table 4.23 provides R and .The R value is 0.79 which represents the simple relationship. It

indicates a higher degree of relationship. The value how much of the dependent variable

“profitability” can be explained by the independent variable “financial literacy”.

Table 4.22: Regression of financial literacy and profitability

Regression Statistics

Multiple R 0.790332

R Square 0.624625

Adjusted R Square 0.616804

Standard Error 0.274284

Observations 50

When R value is greater than 0.5 it shows that there is a strong positive relationship between

the 2 variables. Table 4.23 shows that R is 0.8 which is greater than 0.5 therefore there is a

strong relationship between financial literacy and profitability .R squire is 0.624625, this

means that independent variable (financial literacy) explains 62 % of the dependent

(profitability).

Strongly

Disagree

Disagree Neutral Agree Strongly

Agree

I have too much debt now and I

have or may have difficulty paying

it off

28 17 3 1 1

56% 34% 6% 2% 2%

I have the right amount of debt

right now and I face no problems

with it

21 23 2 1 1

43.8% 47.9% 4.2% 2.1% 2.1%

I have too little debt right now and

I wish I could get more

28 17 3 1 0

57.1% 34.7% 6.1% 2% 0%

42

Table 4.23: ANOVA for financial literacy and profitability

ANOVA

df SS MS F

Significance

F

Regression 1 6.008889 6.008889 79.872 8.77706E-12

Residual 48 3.611111 0.075231

Total 49 9.62

a. Dependent variable : Profitability Score

b. Predictors: (Constant), Financial literacy Score

Table 4.23 indicates that the model predicts the outcome variable significantly well. The

Significance column indicates the statistical significance of the regression model that was

applied. Here, P < 0.0005, which is less than 0.05, and indicates that, overall, the model

applied can statistically significantly predict the outcome variable.

Table 4.24: Coefficients of financial literacy and profitability

Table 4.24, Coefficients, provides information on each predictor variable. This gives us the

information we need to predict profitability from financial literacy.

Dependent Variable: Profitability Score

When P value is less than alpha which is 0.05 then the researcher will reject the null

hypothesis and when is greater than alpha the researcher will accept the null hypothesis.

Table 4.23 shows the P-value of 0.02 which is less than 0.05 therefore the researcher will

reject the null hypothesis. The results show that there is a relationship between financial

literacy and profitability in a business.

4.2.5.5 Relationship between financial literacy and Growth

Table 4.26 provides R and . The R value is 0.79 which represents the simple relationship.

It indicates a higher degree of relationship. The value how much of the dependent variable

“Growth” can be explained by the independent variable “financial literacy”.

Coefficients

Standard

Error t Stat P-value Lower 95%

Upper

95%

Lower

95.0%

Upper

95.0%

Intercept 0.277778 0.116548 2.383374 0.021159 0.043442097 0.512113 0.043442 0.512113

X

Variable

1 0.722222 0.080812 8.937114 8.78E-12 0.559739662 0.884705 0.55974 0.884705

43

Table 4.25: Regression for financial literacy and growth

Regression Statistics

Multiple R 0.791476684

R Square 0.626435341

Adjusted R Square 0.618652744

Standard Error 0.273621241

Observations 50

When R value is greater than 0.5 it shows that there is a strong positive relationship between

the 2 variables. Table 4.25 shows that R is 0.79 which is greater than 0.5 therefore there is a

strong relationship between financial literacy and profitability .R squire is 0.626435, this

means that independent variable (Financial literacy) explains 63% of the dependent (Growth).

Table 4.26: ANOVA for financial literacy and Growth

ANOVA

Df SS MS F Significance F

Regression 1 6.026308 6.026308 80.4918121 7.8E-12

Residual 48 3.593692 0.074869

Total 49 9.62

a. Dependent variable : Growth Score

b. Predictors: (Constant), Financial literacy Score

Table 4.26 indicates that the model predicts the outcome variable significantly well. The

Significance column indicates the statistical significance of the regression model that was

applied. Here, P < 0.0005, which is less than 0.05, and indicates that, overall, the model

applied can statistically significantly predict the outcome variable.

Table 4. 27: P-value for financial literacy and Growth

Coefficients

Standard

Error t Stat P-value

Lower

95%

Upper

95%

Lower

95.0%

Upper

95.0%

Intercept 2.097402597 0.101041 20.75787

0.044E-

25 1.894245 2.30056 1.894245 2.30056

X

Variable

1

-

0.373840445 0.041669 -8.97172

7.8047E-

12 -0.45762

-

0.29006 -0.45762

-

0.29006

Dependent Variable: Growth Score

Table 4.28 shows the P-value of 0.044 which is less than 0.05 therefore the researcher

rejected the null hypothesis. The results show that there is a relationship between financial

literacy and growth in a business.

44

5.0 CHAPTER FIVE

5.1 SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.2 Introduction

This chapter presented a summary of the key elements of the study, discussion of major

findings and interpretation of the results. This chapter further presents the conclusions drawn

from the research findings as well as recommendations for improvement and suggestions for

further research.

5.3 Summary

The main objective of this study was to establish whether there is a relationship between

profitability, growth and level of financial literacy. From the research findings, it is evident

that there is a positive relationship between profitability‟ growth and the level of financial

literacy exists. The findings shows that more successful SSEs employs more than 4

permanent employees, have been in business for more than 2 years, has satisfactory revenue

growth of and are basically financial literate. Majority of these SSEs are service providers

and are managed by well-educated businessmen that understands financial concepts etc. On

the other hand, the SSEs whose business profitability and growth score were low also scored

low in financial literacy. These SSEs are mostly small enterprises run by one and have

employees between ranges of 4-5 employees and runs small shops such as internet cafe,

spare part shops, Restaurants etc, and have recorded minimal or no growth over the years.

5.4 Conclusion

This study concludes that there is positive relationship between profitability, growth and

financial literacy. SSEs that are more successful are run by entrepreneurs who are financial

literate and understand key financial concepts .Financial literacy disclosures entrepreneurs to

better decision making skills that lead to borrowings, risk taking, diversifications, and

investments. The study also concludes that there is a higher a chance for financially literate

entrepreneurs to be more successful than those with low level of financial knowledge.

Nevertheless, the findings suggest that, majority of Mzuzu entrepreneurs have some level of

financial literacy and majority especially in SSEs are highly financially literate. Financial

literacy also seems to go hand in hand with formal education; entrepreneurs that scored high

in financial literacy seemed to be well educated, while in contrast, entrepreneurs with low

level of financial literacy demonstrated low level of formal education. This further implies

that the business education taught in schools has bearing to ones success in business.

45

5.5 Recommendation for Further Research

This study recommends training of Small Scale Enterprises (SSEs). Most of these businesses

survive for many years but with minimal or no growth at all, perhaps due to lack of financial

knowledge. If trained, SSEs in this sector would hold more risk ventures, diversify

investments and raise capital to grow and transform into more solid enterprises. Since this

study covers only Mzuzu, there is need for further study by the researcher that will cover

other urban and rural areas in the country and indeed the entire country. It is also

recommendable to conduct the same study in Large Scale Enterprises or different sectors

alone. Since this study only covers basic financial literacy, it is also recommendable to

further study relationship between advanced financial literacy and firm performance.

5.6 Limitations of the Study

This study was limited by some respondents not willing to disclose their financial

information in terms. Some entrepreneurs were not available and were represented by their

employees who would have different financial literacy level than the owners of business.

46

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49

Appendix I: Questionnaire

This questionnaire is designed to assist in collecting data to determine the relationship

between financial literacy and profitability and growth of small scale enterprises in Mzuzu,

Malawi.

Please note that the findings of this research are solely for academic purposes and all the

responses will be treated with greatest confidentiality.

Instructions:

a) This questionnaire consists of four sections, which comprises of demographic

questions and specific questions.

b) This is not a test or an examination, there is no right or wrong answer to the questions

c) You are required to respond to the questions according to your conviction by ticking

and filling the blank spaces in the options provided

d) Feel free to ask for clarification if you are not clear on any of the questions

50

Section A: General Information

Biographical information based on the respondent Please tick the appropriate box for the

questions that follows below:

1. Gender

Male Female

2. Highest Qualification

JCE/MSCE Diploma Bachelor’s Degree Masters PhD

Others (Specify)……………………………………………………...……….................

3. What is the nature of your business?

Service provision Manufacturing Merchandising

4. Which position do you hold in the business?

Owner Director Manager Employee

5. How long has your business been in operation?

Less than 2 years 2-4 years 5-8 years 9- 10years More than10 years

6. How many employees do you have now?

4-5 6-7 Over 7 Specify_____________________

7. Have you added any employee for the past two years?

Yes No

If yes how many? ____________

Why did you add or fail to add employees?

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

51

Section B: Measuring Small Scale Business Profitability

1. Have you been making profits in your business for the past three years?

Yes No

If yes, what has been your profit trend for the past three years?

Rising Declining Constant Not Sure

If no, what has been the trend in the losses?

Rising Declining Constant Not Sure

Give the possible reasons for the losses

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

2. Do you invest the profit from your business?

Yes No

If yes, what are the areas you invest in and their proportions?

Investing back into business

Personal projects

Starting new business

All the above

Others (Specify)_________________________________________________

52

Section C: Basic Financial Literacy Questions

1. Have you undergone any financial management or business oriented course?

Yes No

If yes, how has it helped in your business?

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

2. Do you give yourself a salary every month?

Yes No

3. In case of personal emergency where do you get the money to attend to it?

From business Personal savings

4. What business records do you keep?

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

5. Do you make financial plan for your business?

Yes No

If yes to question five do you monitor it regularly?

Yes

No

53

Section D: Basic Growth Questions

1. Overall, how would you rate the growth of your enterprise for the past 3 years?

Exceptional growth Negative Growth

Satisfactory growth NoGrowth

2. Have you ever acquired a loan?

Yes

No

If yes to question two, what factors did you consider before getting the loan?

Payment period Repayment amount/month

Rate of interest Cost of the loan

All the above: ............................................................................................................

If no to question two above, why did you fail to obtain a loan?

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

3. Perception of Debt burden

Please indicate your level of agreement with each of the statements in the table

below; which of the following best describe your current debt position?

Strongly

Disagree

Disagree Neutral Agree Strongly

Agree

I have too much debt right now

and I have or may have

difficulty paying it off.

I have the right amount of debt

right now and I face no problems

with it.

I have too little debt right now. I

wish I could get more.

Thank you for participating in this study!!!!!!!!!!!!!!!!!

Once again the findings of this research are solely for academic purposes and all the

responses will be treated with greatest confidentiality.

The end!!!!!!!!!!