Financial Literacy as a Driver of Governance and Sustainability in Small and Medium Enterprises
Authors
-
Manpreet Kaur
Research Scholar (Corresponding Author), Mittal School of Business, Lovely Professional University, Jalandhar – Delhi, Grand Trunk Road, Phagwara - 144 411, Punjab
https://orcid.org/0009-0004-6749-7039
-
Babli Dhiman
Professor, Mittal School of Business, Lovely Professional University, Jalandhar – Delhi Grand Trunk Road, Phagwara - 144 411, Punjab
https://orcid.org/0000-0001-6716-3857
DOI:
https://doi.org/10.17010/pijom/2025/v18i11/173882Keywords:
sustainability, financial literacy, access to credit, access to credit governance, small and medium-sized enterprises (SMEs).JEL Classification Codes : G20, I20, Q56
Publication Chronology: Paper Submission Date : October 15, 2024 ; Paper sent back for Revision : August 30, 2025 ; Paper Acceptance Date : September 10, 2025 ; Paper Published Online : November 15, 2025
Abstract
Purpose : The research was conducted to determine how governance systems and financial resources affected sustainability, with a particular focus on the importance of financial literacy (FL) among owners of small and medium-sized enterprises (SMEs).
Design/Methodology : The questionnaires were used to gather data, and a convenience sample of small and medium-sized business owners in Punjab was utilized. Based on 308 valid answers, the research applied the partial least squares-structural equation modeling (PLS-SEM) method to analyze the correlation between the variables.
Results : The results showed that FL significantly affected access to loans and other financial resources, enabling sustainability to a large extent. The statistical significance of the correlation between FL and sustainability governance was not high. The findings revealed that SME owners who became more financially literate were in a better position to access external funding, which enabled them to manage their businesses in a more sustainable manner.
Practical Implications : SME owners, managers, and universities need to cooperate more closely to enhance education and assist individuals in making more informed decisions. The research identified various limitations and recommended that another study be conducted on how inequalities in literacy levels, resource availability, and entrepreneurial lifestyles affected sustainability.
Novelty : The research clarified the role of entrepreneurial FL as a factor in accessing external financing and what makes a successful entry into the regulatory platform and its viability.
Downloads
Published
How to Cite
Issue
Section
References
1) Ahmed, K., & Khan, R. (2016). Disclosure practices and governance quality: Evidence from micro finance institutions. Journal of Accounting & Organizational Change, 12(3), 325–350. https://doi.org/10.1108/JAOC-02-2015-0014
2) Anshika, Singla, A., & Mallik, G. (2021). Determinants of financial literacy: Empirical evidence from micro and small enterprises in India. Asia Pacific Management Review, 26(4), 248–255. https://doi.org/10.1016/j.apmrv.2021.03.001
3) Atahau, A. D., Sakti, I. M., Hutar, A. N., Huruta, A. D., & Kim, M.-S. (2023). Financial literacy and sustainability of rural microfinance: The mediating effect of governance. Cogent Economics & Finance, 11(2), Article ID 2230725. https://doi.org/10.1080/23322039.2023.2230725
4) Buchdadi, A. D., Sholeha, A., Ahmad, G. N., & Mukson. (2020). The influence of financial literacy on SMEs performance through access to finance and financial risk attitude as mediation variables. Academy of Accounting and Financial Studies Journal, 24(5), 1–17. https://www.researchgate.net/publication/345045505
5) Burchi, A., Włodarczyk, B., Szturo, M., & Martelli, D. (2021). The effects of financial literacy on sustainable entrepreneurship. Sustainability, 13(9), 5070. https://doi.org/10.3390/su13095070
6) Chakrabarti, D., Das, S., Shrivastava, A., Mohanty, D., & Matta, R. (2025). Unveiling the aggregated effect of entrepreneurial orientation on enterprise performance. Prabandhan: Indian Journal of Management, 18(2), 8–25. https://doi.org/10.17010/pijom/2025/v18i2/174161
7) Chanda, P., & Ghosh, S. (2024). Optimizing workforce efficiency using an artificial intelligence approach: A next-gen HR management system. In 2024 ASU International Conference in Emerging Technologies for Sustainability and Intelligent Systems (ICETSIS) (pp. 1416–1421). IEEE. https://doi.org/10.1109/ICETSIS61505.2024.10459590
8) Chutani, R., Purohit, H., & Purohit, S. (2015). Change in financial literacy in Punjab and Haryana post-financial inclusion schemes. SSRN. https://doi.org/10.2139/ssrn.2677132
9) Civelek, M. (2021). The mediating role of SMEs' performance in the relationship between entrepreneurial orientation and access to finance. BAR - Brazilian Administration Review, 18(4), 1–25. https://doi.org/10.1590/1807-7692bar2021210045
10) Clark, R. L., Lusardi, A., & Mitchell, O. S. (2025). Does being financially resilient lead to better economic outcomes? Journal of Financial Literacy and Wellbeing, 1–18. https://doi.org/10.1017/flw.2024.23
11) Dewi, V. I., Febrian, E., Effendi, N., Anwar, M., & Nidar, S. R. (2020). Financial literacy and its variables: The evidence from Indonesia. Economics & Sociology, 13(3), 133–154. https://doi.org/10.14254/2071-789X.2020/13-3/9
12) Dimri, A., Kumar, P., & Jain, V. K. (2024). Unraveling job embeddedness in the Indian hotel sector: Investigating turnover and retention. Prabandhan: Indian Journal of Management, 17(6), 27–45. https://doi.org/10.17010/pijom/2024/v17i6/173559
13) Eapen, S., Shamshuddin, S., & Mayur, S. J. (2025). Empowering educators: Self-efficacy and psychological safety in driving employee engagement. Prabandhan: Indian Journal of Management, 18(7), 47–57. https://doi.org/10.17010/pijom/2025/v18i7/174564
14) Eniola, A. A., & Entebang, H. (2016). Financial literacy and SME firm performance. International Journal of Research Studies in Management, 5(1), 31–43. https://doi.org/10.5861/ijrsm.2015.1304
15) Faizan, R., & Haque, A. U. (2019). Working efficiency of contrasting genders under eustress, distress, hyper-stress, and hypo-stress. Prabandhan: Indian Journal of Management, 12(11), 32–46. https://doi.org/10.17010/pijom/2019/v12i11/148411
16) Finnegan, M., & Kapoor, S. (2023). ECB unconventional monetary policy and SME access to finance. Small Business Economics, 61(3), 1253–1288. https://doi.org/10.1007/s11187-023-00730-0
17) Fornell, C., & Larcker, D. F. (1981). Evaluating structural equation models with unobservable variables and measurement error. Journal of Marketing Research, 18(1), 39–50. https://doi.org/10.1177/002224378101800104
18) Gitman, L. J., & Zutter, C. J. (2015). Principles of managerial finance. Pearson Education.
19) Güney, T. (2017). Governance and sustainable development: How effective is governance? The Journal of International Trade & Economic Development, 26(3), 316–335. https://doi.org/10.1080/09638199.2016.1249391
20) Haider, S. H., Asad, M., Fatima, M., & Atiq, H. (2017). Mediating role of opportunity recognition between credit, savings, and performance of micro and small enterprises in Pakistan. Journal of Advanced Research in Business and Management Studies, 7(2), 91–99. https://www.akademiabaru.com/submit/index.php/arbms/article/view/1245
21) Hou, Y., & Fang, Z. (2023). Unleashing the mechanism between small and medium enterprises and green financing in China: A pathway toward environmental sustainability and green economic recovery. Environmental Science and Pollution Research, 30(1), 1672–1685. https://doi.org/10.1007/s11356-022-21448-8
22) Islam, Y., Mindia, P. M., Farzana, N., & Qamruzzaman, M. (2023). Nexus between environmental sustainability, good governance, financial inclusion, and tourism development in Bangladesh: Evidence from symmetric and asymmetric investigation. Frontiers in Environmental Science, 10. https://doi.org/10.3389/fenvs.2022.1056268
23) Jiang, Y., Li, C., Zhang, J., & Zhou, X. (2019). Financial stability and sustainability under the coordination of monetary policy and macroprudential policy: New evidence from China. Sustainability, 11(6), 1616. https://doi.org/10.3390/su11061616
24) Kalaieesan, K. (2021). The relationship between access to finance and growth of SMEs in the Northern Province of Sri Lanka: Financial literacy as a moderator. Management Studies, 9(3), 567–589. https://doi.org/10.17265/2328-2185/2021.03.004
25) Kara, A., Zhou, H., & Zhou, Y. (2021). Achieving the United Nations' sustainable development goals through financial inclusion: A systematic literature review of access to finance across the globe. International Review of Financial Analysis, 77, Article ID 101833. https://doi.org/10.1016/j.irfa.2021.101833
26) Kaur, M., & Dhiman, B. (2024). A framework for exploring the integration of AI and financial literacy toward a sustainable financial ecosystem. Educational Administration: Theory and Practice, 30(4), 8750–8759. https://doi.org/10.53555/kuey.v30i4.2382
27) Kaur, M., & Dhiman, B. (2025a). A multidisciplinary approach to building resilience against deepfakes in the financial sector. In Mastering deepfake technology: Strategies for ethical management and security (1st ed.). River Publishers.
28) Kaur, M., & Dhiman, B. (2025b). Performance evaluation and scientific mapping in sustainability-focused green finance and literacy. Anuário do Instituto de Geociências, 48(1), 1–14. https://doi.org/10.11137/1982-3908_2025_48_63945
29) Kulathunga, K. M., Ye, J., Sharma, S., & Weerathunga, P. R. (2020). How does technological and financial literacy influence SME performance: Mediating role of ERM practices. Information, 11(6), 297. https://doi.org/10.3390/info11060297
30) Kumar, L., Nadeem, F., Sloan, M., Restle-Steinert, J., Deitch, M. J., Naqvi, S. A., Kumar, A., & Sassanelli, C. (2022). Fostering green finance for sustainable development: A focus on textile and leather small and medium enterprises in Pakistan. Sustainability, 14(19), 11908. https://doi.org/10.3390/su141911908
31) Lambert, E., Deyganto, K. O., & Algasse, K. (2023). The role of financial literacy on sustainable development of micro, small, and medium enterprises (MSMEs) in Africa. Qeios. https://doi.org/10.32388/A0KEDT
32) Lee, C.-W., & Huruta, A. D. (2022). Green microfinance and women's empowerment: Why does financial literacy matter? Sustainability, 14(5), 3130. https://doi.org/10.3390/su14053130
33) Lwesya, F., & Mwakalobo, A. B. (2023). Frontiers in microfinance research for small and medium enterprises (SMEs) and microfinance institutions (MFIs): A bibliometric analysis. Future Business Journal, 9(1), Article No. 17. https://doi.org/10.1186/s43093-023-00195-3
34) Mashizha, M., Sibanda, M., & Maumbe, B. (2019). Financial literacy among small and medium enterprises in Zimbabwe. The Southern African Journal of Entrepreneurship and Small Business Management, 11(1), Article No. a241. https://doi.org/10.4102/sajesbm.v11i1.241
35) Meitriana, M. A., Yuliarmi, N. N., Utama, M. S., & Marhaeni, A. A. (2022). Social capital-based financial literacy to improve business performance: A narrative review. International Journal on Social Science, Economics and Art, 12(2), 83–90. https://doi.org/10.35335/ijosea.v12i2.97
36) Menyelim, C. M., Babajide, A. A., Omankhanlen, A. E., & Ehikioya, B. I. (2021). Financial inclusion, income inequality and sustainable economic growth in Sub-Saharan African countries. Sustainability, 13(4), 1780. https://doi.org/10.3390/su13041780
37) Meressa, H. A. (2023). Entrepreneurial financial literacy–small business sustainability nexus in Ethiopia. Cogent Business & Management, 10(2), Article ID 2218193. https://doi.org/10.1080/23311975.2023.2218193
38) Mishra, R., Sharma, M. P., Seth, K., & Singh, V. (2023). A study on consumers' travel purchase intention through travel apps. Prabandhan: Indian Journal of Management, 16(7), 25–42. https://doi.org/10.17010/pijom/2023/v16i7/172926
39) Molina-García, A., Diéguez-Soto, J., Galache-Laza, M. T., & Campos-Valenzuela, M. (2023). Financial literacy in SMEs: A bibliometric analysis and a systematic literature review of an emerging research field. Review of Managerial Science, 17(3), 787–826. https://doi.org/10.1007/s11846-022-00556-2
40) Musie, L. (2015). The use of financial literacy concepts by entrepreneurs in the small and medium enterprise sector in Mpumalanga Province, South Africa (Doctoral dissertation, University of Pretoria). University of Pretoria Repository. http://hdl.handle.net/2263/52268
41) Nzibonera, E., & Waggumbulizi, I. (2020). Loans and growth of small-scale enterprises in Uganda: A case study of Kampala Central business area. African Journal of Business Management, 14(5), 159–169. https://doi.org/10.5897/AJBM2020.8985
42) Ovat, O. O. (2016). Commercial banks' credit and the growth of small and medium Scale enterprises: The Nigerian experience. IOSR Journal of Economics and Finance, 7(6), 23–30. https://doi.org/10.9790/5933-0706042330
43) Ozkan, S., Romagnoli, S., & Rossi, P. (2023). A novel approach to rating SMEs' environmental performance: Bridging the ESG gap. Ecological Indicators, 157, Article ID 111151. https://doi.org/10.1016/j.ecolind.2023.111151
44) Pahari, S., Ghosal, I., Prasad, B., & Dildar, S. M. (2023). Which determinants impact consumer purchase behavior toward online purchasing of organic food products? Prabandhan: Indian Journal of Management, 16(1), 25–41. https://doi.org/10.17010/pijom/2023/v16i1/172667
45) Panakaje, N., Rahiman, H. U., Parvin, S. M., Kulal, A., & Siddiq, A. (2023). Socio-economic empowerment in rural India: Do financial inclusion and literacy matter? Cogent Social Sciences, 9(1), Article ID 2225829. https://doi.org/10.1080/23311886.2023.2225829
46) Patrick, B., Eric, M., & Patrick, B. E. (2021). Access to finance and sustainability of small and medium enterprises in Central Uganda. International Journal of Research and Innovation in Social Science, 5(19), 263–268. https://rsisinternational.org/journals/ijriss/Digital-Library/volume-5-issue-9/263-268.pdf
47) Prasetya, A., Rahardjo, K., Mawardi, M. K., Hidayat, R. R., & Prakasa, Y. (2021). The mediation role of financial literacy in ensuring MSMEs sustainability: An organizational characteristics perspective. JEMA: Jurnal Ilmiah Bidang Akuntansi dan Manajemen, 18(1), 61–79. https://doi.org/10.31106/jema.v18i1.10356
48) Ravichandran, S. S. (2025). Navigating the future of sustainable food tourism: Implications for marketers, policymakers, and researchers. Prabandhan: Indian Journal of Management, 18(5), 68–74. https://doi.org/10.17010/pijom/2025/v18i5/174412
49) Ringe, W.-G. (2023). Investor empowerment for sustainability. Review of Economics, 74(1), 21–52. https://doi.org/10.1515/roe-2023-0016
50) Sajjad, A., Ibrahim, Y., Shamsuddin, J., & Sharif, S. (2023). Impact of entrepreneurial orientation on SME performance: The moderating role of environmental turbulence. Prabandhan: Indian Journal of Management, 16(5), 18–36. https://doi.org/10.17010/pijom/2023/v16i5/172823
51) Salimzadeh, P., & Courvisanos, J. (2015). A conceptual framework for assessing sustainable development in regional SMEs. Journal of Environmental Assessment Policy and Management, 17(4), Article ID 1550039. https://doi.org/10.1142/S1464333215500398
52) Sanistasya, P. A., Raharjo, K., & Iqbal, M. (2019). The effect of financial literacy and financial inclusion on small enterprises' performance in East Kalimantan. Jurnal Economia, 15(1), 48–59. https://doi.org/10.21831/economia.v15i1.23192
53) Sen, S., & Banerjee, S. (2024). Exploring the relationship between psychological maturity and leadership personality traits: A discourse analysis. Prabandhan: Indian Journal of Management, 17(5), 60–70. https://doi.org/10.17010/pijom/2024/v17i5/173482
54) Seraj, A. H., Fazal, S. A., & Alshebami, A. S. (2022). Entrepreneurial competency, financial literacy, and sustainable performance—Examining the mediating role of entrepreneurial resilience among Saudi entrepreneurs. Sustainability, 14(17), 10689. https://doi.org/10.3390/su141710689
55) Setyahadi, R. R., & Narsa, I. M. (2020). Corporate governance and sustainability in Indonesia. The Journal of Asian Finance, Economics and Business, 7(12), 885–894. https://doi.org/10.13106/jafeb.2020.vol7.no12.885
56) Siddiqui, T. A., Ali, M. S., Sunayana, Alam, N., & Ranjan, P. (2025). Understanding financial inclusion through social and behavioural lenses. Prabandhan: Indian Journal of Management, 18(4), 52–71. https://doi.org/10.17010/pijom/2025/v18i4/174316
57) Singh, K., & Misra, M. (2024). Linking harmonious CSR and financial inclusion: The moderating effects of financial literacy and income. The Singapore Economic Review, 69(1), 377–398. https://doi.org/10.1142/S0217590820500629
58) Singh, N., & Nigam, S. (2021). Value-based segmentation of Generation Z women consumers of India: Replication and validation of model. Prabandhan: Indian Journal of Management, 14(10), 8–23. https://doi.org/10.17010/pijom/2021/v14i10/166641
59) Sulistianingsih, H., & Santi, F. (2023). Do SME's financing decisions follow the pecking order pattern? The role of financial literacy, risk preference, and home bias in SME financing decisions. Cogent Business & Management, 10(1), Article ID 2174477. https://doi.org/10.1080/23311975.2023.2174477
60) Tripathi, A., Bagga, T., & Aggarwal, R. K. (2020). Strategic impact of business intelligence: A review of literature. Prabandhan: Indian Journal of Management, 13(3), 35–48. https://doi.org/10.17010/pijom/2020/v13i3/151175
61) Tuffour, J. K., Amoako, A. A., & Amartey, E. O. (2020). Assessing the effect of financial literacy among managers on the performance of small-scale enterprises. Global Business Review, 23(5), 1200–1217. https://doi.org/10.1177/0972150919899753
62) Wahyono, & Hutahayan, B. (2021). The relationships between market orientation, learning orientation, financial literacy, on the knowledge competence, innovation, and performance of small and medium textile industries in Java and Bali. Asia Pacific Management Review, 26(1), 39–46. https://doi.org/10.1016/j.apmrv.2020.07.001
63) Zaimovic, A., Torlakovic, A., Arnaut-Berilo, A., Zaimovic, T., Dedovic, L., & Meskovic, M. N. (2023). Mapping financial literacy: A systematic literature review of determinants and recent trends. Sustainability, 15(12), 9358. https://doi.org/10.3390/su15129358
64) Zaniarti, S., Veronica, S., & Arsytania, R. A. (2022). The effect of financial literacy on the sustainability of micro, small, and medium enterprises with access to finance as a mediating variable. International Journal of Management Science and Business Administration, 9(1), 17–31. https://doi.org/10.18775/ijmsba.1849-5664-5419.2014.91.1002
