Running a small business is hard enough when the economy is humming along. Running one in a region where banks lend only about 2% of their portfolios to small and medium enterprises is a different kind of challenge altogether. That striking number, drawn from a World Bank and Union of Arab Banks survey of banks in the Middle East and North Africa, hints at why researchers keep returning to a basic question: what separates small businesses that thrive from those that stall?
A recent investigation in the Journal of Financial Reporting and Accounting takes up that question in Kuwait, examining how the financial know-how of business owners connects to company performance, and whether having decent access to banks, loans, and financial services changes the strength of that connection.
The question behind the research
Small and medium enterprises, often called SMEs, make up roughly 90% of businesses worldwide and employ more than half the global workforce. But in the Middle East and North Africa, the gap between what these businesses need in financing and what they actually receive has been estimated at $210 billion to $240 billion. Kuwait presents its own puzzle: the Global Entrepreneurship Monitor has reported that nearly 48% of Kuwaiti adults fear failing if they start a business, one of the highest rates in the world.
Wael Abdallah of Box Hill College Kuwait led the study, working with colleagues Arezou Harraf, Hasan Ghura of Kuwait College of Science and Technology, and Maryam Abrar of Maastricht School of Management Kuwait. Their central idea was straightforward: financial literacy likely helps SMEs perform better, but knowing how to read a balance sheet doesn’t mean much if you can’t actually get a loan. The researchers wanted to test whether access to financial services amplifies the benefits of financial literacy.
Financial literacy, as the authors define it, goes beyond basic budgeting. It includes bookkeeping skills, savings habits, debt management, investment understanding, and knowledge of insurance. Financial access refers to whether SMEs can actually obtain credit, find capital sources, secure loans, and use financial services regularly.
How the study was conducted
The research team surveyed 115 owners and managers of SMEs in Kuwait between November 2023 and January 2024. The sample skewed male (65%), with nearly half the respondents between 25 and 34 years old, and most holding bachelor’s degrees. About 59% were solo entrepreneurs, with the rest running partnerships, joint ventures, or other arrangements. Retail and service businesses made up the largest share, followed by trade and commerce.
Participants were recruited through snowball sampling, where initial respondents referred others, a method the authors chose because Kuwait’s business culture relies heavily on word-of-mouth networks. The survey, adapted from previously validated instruments and translated into Arabic, was distributed via WhatsApp. The survey consisted of 52 items. Respondents rated the three main concepts on a five-point scale: their own financial literacy, their access to financial services, and their firm’s performance in areas like sales growth, capital growth, employment growth, and market expansion.
To analyze the results, the researchers used a statistical technique called partial least squares structural equation modeling, which allows researchers to test complex relationships between several variables at once. They ran two layers of analysis: one looking at overall relationships between financial literacy, access, and performance, and a second breaking down which specific types of financial literacy were linked to which aspects of business performance.
What the data revealed
The headline finding confirmed what previous research had suggested: financial literacy was strongly linked to SME performance. The statistical relationship was substantial, and the model explained about 85% of the variation in performance among the businesses surveyed.
The second finding is where things got more interesting. Financial access didn’t just matter on its own. It changed how powerful financial literacy was. When SME owners had better access to credit, capital, and financial services, the payoff from their financial knowledge grew larger. The authors interpret this as evidence that knowing how to manage money and having the means to deploy that knowledge work together rather than independently.
When the researchers broke financial literacy into its components, a clearer picture emerged about what actually drives business outcomes. Debt literacy showed the strongest links across every performance measure, including sales growth, capital growth, employment growth, and market expansion. Investment literacy and insurance literacy also showed meaningful relationships with most performance indicators.
Bookkeeping literacy and savings literacy, by contrast, didn’t show much independent effect on performance once the other variables were accounted for. That doesn’t mean bookkeeping is unimportant, but in this sample, it was the ability to handle borrowing, investing, and risk management that tracked most closely with how well businesses were doing.
What this might mean for business owners and policymakers
The authors suggest that financial literacy training programs aimed at SME owners would benefit from emphasizing the areas that appear to matter most: understanding debt, making investment decisions, and managing insurance and risk. Generic financial education that focuses heavily on basic record-keeping may miss the skills most associated with growth.
For policymakers, the study points toward a two-track approach. Teaching financial skills is valuable, but without parallel efforts to expand financial access, those skills may not translate into better business outcomes. The researchers argue that policies promoting financial inclusion can multiply the returns on financial education investments.
For individual business owners, the practical takeaway is that building financial knowledge is most useful when paired with active engagement with financial institutions. Learning about debt management matters more when you have realistic options to borrow on reasonable terms.
The limits of what this study can tell us
Several caveats deserve attention. The study is observational and cross-sectional, meaning it captured a snapshot at a single point in time rather than tracking businesses over months or years. That limits the ability to say that financial literacy causes better performance; the relationship could run in both directions, or both could be influenced by other factors such as the owner’s general business acumen or industry conditions.
The sample of 115 businesses, while sufficient for the statistical techniques used, is relatively small and was drawn through a referral-based method rather than random sampling. That raises questions about how representative the respondents are of Kuwait’s broader SME population. The measures also relied on self-reports, which can be affected by how respondents perceive their own abilities or their business’s health.
The authors acknowledge these limits and suggest that future work use longitudinal designs, larger samples, and objective measures of both financial literacy and business performance. They also note that Kuwait’s specific social and corporate environment means findings may not transfer directly to other contexts, though similar patterns have appeared in studies from Ghana, Kenya, Nigeria, and Bangladesh.
