Financial Literacy and its Impact on Funding Source’s Decision-Making

Abstract

Small and Medium Enterprises (SMEs) plays a significant role for the economic development of a country. Specifically, the existence of SMEs is to contribute in poverty alleviation through job creation. However, not many SMEs can survive and grow their business due to limited access to obtain resources such as financial, technological, and human resources. One of the factors that inhibit the development of MSMEs in Indonesia is the lack of knowledge and management of personal finance. In addition, the participation rate of SMEs to financial institutions is still very low, with only 30% able to access financing. This study aims to analyse the level of financial literacy, the factors that affect the level of financial literacy, and the correlation between the level of financial literacy (proxied by general knowledge, risk management, savings and credits, and investment) with funding decision. The data used are primary data and secondary data, with data collection methods conducted in this study are literature studies, interviews and questionnaires with SMEs in Bandung, Indonesia, with a sample used as many as 97 respondents. The respondents’ financial literacy in low level on general financial knowledge, savings & credits, and investment. But they have medium financial literacy level on insurance. The data processed using discriminant analysis, shows that the average financial literacy level which is in low level and has no effect on funding decision-making.