Veritatis Gaudium: Multidisciplinary Journal of Postgraduate Studies

Financial literacy has increasingly been recognized as a strategic managerial capability that enhances the competitiveness, sustainability, and overall performance of small and medium enterprises (SMEs). Despite the growing body of research, existing evidence remains fragmented, with studies varying in their conceptualization of financial literacy and reporting inconsistent findings regarding its influence on business performance. This paper presents a systematic narrative literature review that synthesizes the conceptual, theoretical, and empirical evidence on the relationship between financial literacy and SME performance. Relevant literature was sourced from leading scholarly databases, including Scopus, Web of Science, ScienceDirect, Emerald Insight, SpringerLink, Taylor & Francis Online, Wiley Online Library, Google Scholar, and JSTOR, with emphasis on peer-reviewed studies published between 2019 and 2025. The review conceptualizes financial literacy as a multidimensional construct comprising financial knowledge, financial attitudes, and financial behaviour, while business performance is viewed from both financial and non-financial perspectives. The review is anchored on the Resource-Based Theory and Contingency Theory, which explain how financial literacy functions as a valuable intangible resource whose effectiveness is influenced by contextual factors. Empirical evidence consistently indicates that financially literate entrepreneurs are better positioned to improve financial decision-making, resource allocation, risk management, operational efficiency, profitability, and long-term business sustainability. However, variations in findings suggest that contextual and organizational factors shape the strength of this relationship. The review contributes to entrepreneurship and SME literature by providing an integrated understanding of financial literacy and business performance, identifying unresolved research gaps, and proposing directions for future research, policy formulation, entrepreneurship education, and SME capacity-building initiatives.

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