Thesis:

Analysis of financial literacy on financial performance of micro, small and medium enterprises (MSMES) in Nairobi county, Kenya

The expansion of the economy and the creation of jobs in Nairobi County, Kenya, are directly tied to the success of micro, small, and medium-sized businesses. Financial management is a challenge for many MSMEs, which impacts their ability to stay in business. If we want to know, "How is financial literacy related to the financial performance of micro, small, and medium-sized enterprises (MSMEs)?" this study looked at four things: saving, spending, managing debt, and budgeting. Filling a void in the existing empirical research, this study will investigate the financial literacy and performance of micro, small, and medium-sized firms (MSMEs) in Nairobi County. Improving MSMEs' financial performance can be explained by this research using Financial Capability Theory, Resource-Based Theory, and Human Capital Theory. To increase financial performance, these theories stress the importance of competent financial management, optimizing resources, and organizational knowledge. In order to evaluate financial literacy and its consequences on financial success, the study gathered data using a combination of methods. A standardized questionnaire was used to inquire about the participants' financial literacy and performance. Topics covered in the questions included financial planning, saving, investing, and handling debt. In order to ascertain the level of financial literacy and the insights it entails; a stratified sampling technique was employed to select MSME owners and managers from Nairobi County. The strategy relied on a thorough survey that included verified financial literacy tests and financial performance indicators. We executed a pilot test with 10 randomly chosen respondents to find any ambiguities, get a feel for how long the survey would take, and make any necessary adjustments depending on their feedback. Items with Cronbach's Alpha values lower than 0.70 are considered unreliable. In order to get an exact count, the questionnaire was sent out to those who were meant to reply after this pilot survey. To ensure a representative sample of MSME owners and managers in Nairobi County, we employed stratified sampling. Data cleaning was followed by an evaluation of sample characteristics and financial literacy using descriptive statistics. After adjusting for confounding factors, regression analysis showed how each aspect of financial literacy affected financial performance, and correlation analysis looked at the connections between these aspects. Investing, in contrast to saving, managing debt, and creating a budget, does not significantly affect financial outcomes. The beta coefficient for the effect of budgeting on financial performance was 0.160, indicating a positive and statistically significant relationship. There is a 0.160-unit improvement in financial performance for every unit change in budgeting. A one-unit change in debt management boosts financial performance by 0.205 units, indicating a strong positive correlation between the two. Investment had a small but beneficial effect on financial performance, as indicated by a weak statistically significant relationship (β=0.022, p=0.787). The beta coefficient for saving was 0.441, suggesting a very positive correlation with financial outcomes. A 0.441-unit improvement in financial performance is associated with one-unit savings. The results demonstrate that understanding financial matters is critical for the development and survival of MSME.