Nigerian Journal of Banking and Financial Issues (NJBFI)

FINANCIAL CAPABILITY AND FINANCIAL PERFORMANCE OF ENTERPRISES IN ONDO STATE

Abstract

Recent researches increasingly highlight that financial capability, or its absence, contributes significantly to financial vulnerability and exclusion among small and medium enterprises (SMEs), with notable effects on enterprise performance. Unlike previous studies that mainly emphasised financial literacy, this research adopted a broader perspective by examining how financial capability, a composite of financial attitude, behaviour, literacy, and skills influence entrepreneurial performance. The study employed a survey research design, targeting 600 registered SMEs in manufacturing and services, with 240 randomly selected respondents. Data from structured questionnaires were analysed using descriptive and inferential statistics. Results from descriptive analysis revealed a low financial capability among SMEs. Inferential analysis revealed a statistically significant positive relationship between financial capability and firms’ profitability (p = 0.000 < 0.05). Furthermore, financial behaviour and skills were found to have a positive influence on profitability.  The study adds to existing literature by highlighting the pivotal role of financial behaviour and skills in enhancing SMEs’ financial performance. In conclusion, the study highlighted the cruciality of financial capability for SMEs to manage finances, boost financial inclusion, and improve overall performance. It recommended that government agencies like SMEDAN should incorporate financial capability programs, frameworks, and policies to strengthen SMEs’ usage of financial resources and development.