Financial Literacy and Its Impact on MSEs Performance: A Mediating Role of Financial Self-efficacy

Abstract

This study investigates the role of financial literacy (FL) and financial self-efficacy (FSE) in enhancing business performance (BP) among micro and small enterprises (MSEs), grounded in social cognitive theory (SCT). Based on data collected from 398 MSE entrepreneurs in Odisha, the relationships among the key constructs were examined using partial least squares structural equation modelling (PLS-SEM). The results reveal that FL positively influences FSE, which significantly affects BP. Furthermore, FSE is found to partially mediate the relationship between FL and BP, suggesting that both knowledge and confidence are critical for entrepreneurial success. These findings underscore the need for integrated approaches that combine the importance of integrating financial education with strategies aimed at strengthening self-efficacy. This study offers practical implications for policymakers, educators and financial institutions in designing targeted training programmes that address both the cognitive and behavioural dimensions of financial management. However, the study was limited to a specific geographical region and is based on self-reported data, which may be subject to response bias. Future research could extend this framework across diverse regions and adopt longitudinal methods to enhance its generalisability.

Keywords

Financial literacy financial self-efficacy business performance micro and small enterprises social cognitive theory

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