Access to Finance as a Moderator between Financial Literacy and Debt Level of Micro and Small Enterprises in the Northern Province of Sri Lanka.
Keywords:
Access to finance, Debt level, Financial literacy, Micro and Small EnterprisesAbstract
Increasing debt levels among Micro and Small Enterprises (MSEs) threaten not only business survival and growth but also the livelihoods they sustain within local communities. This study examines the impact of financial literacy on the debt levels of MSEs in Sri Lanka’s Northern Province, a region affected by prolonged post-conflict economic challenges. Grounded in Resource-Based Theory (RBT) and the Knowledge-Based View (KBV), financial literacy is treated as a multidimensional construct comprising of, bookkeeping, saving, debt, investment, and insurance literacy, and viewed as a critical resource for business owners’ financial decision-making. Data was collected through a structured survey among 380 MSEs across manufacturing, trading, and service sectors and analysed using SPSS and SmartPLS. The findings reveal a strong, statistically significant negative relationship between financial literacy and debt levels, indicating that financially literate owners are less likely to accumulate unsustainable debt. Debt literacy shows the strongest effect, while insurance literacy among MSEs remains notably low. Access to finance significantly moderates this relationship, strengthening the impact of financial literacy on debt reduction.
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