Moderating Effect of Debt Literacy on the Link between Debt Management Behaviour and SME Growth Sustainability

Apollo Okello; Paul Onyango-Delewa; Godfrey Moses Owot

doi:10.37284/ijfa.4.1.3093

Apollo Okello Gulu University
Paul Onyango-Delewa Gulu University
Godfrey Moses Owot Gulu University

DOI: https://doi.org/10.37284/ijfa.4.1.3093

Keywords: Lifestyle Patterns, Religiosity, Financial Self-Efficacy, Growth Sustainability, Debt Literacy, SMEs

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Abstract

Small and Medium-sized Enterprises (SMEs) play a crucial role in the economic development of emerging economies; however, their growth is frequently obstructed by financial mismanagement and insufficient debt literacy. This research examines how debt literacy influences the relationship between debt management practices and the sustainability of growth in SMEs located in Lira City, Uganda. This study assesses the interaction between behavioural traits—such as lifestyle patterns, religiosity, and financial self-efficacy—and dimensions of debt literacy (debt knowledge and debt skills) in relation to firm growth. A cross-sectional quantitative design was utilized, and data were gathered from 311 SMEs through a structured questionnaire. Structural Equation Modelling (SEM) utilizing a bootstrap approach was applied to examine direct and moderating effects. The findings indicate that lifestyle patterns substantially impede the growth of SMEs, whereas financial self-efficacy and religiosity do not exert direct effects. Both traits positively influenced debt literacy, which was identified as a significant mediating factor. Debt literacy served as a partial mediator in the relationship between behavioural traits and firm growth, underscoring its significance in converting behavioural dispositions into sustainable financial results. The results substantiate the relevance of the Theory of Planned Behaviour, Sustainable Growth Theory, and Financial Capability Theory in elucidating SME performance. This study enhances theoretical understanding and informs policy development by illustrating the importance of debt literacy for effective financial behaviour. The integration of debt literacy into national SME support frameworks and financial training initiatives, customized to the behavioural profiles of entrepreneurs in developing economies, is recommended

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