Financial Knowledge and Investment Decision-making among Small and Medium Enterprises in Rombo District, Tanzania

Abstract

Background: Small and medium enterprises (SMEs) play an important role in employment creation, income generation and local economic development in Tanzania. Despite growing evidence on financial literacy and SME performance, limited empirical evidence exists on how specific dimensions of financial literacy jointly relate to investment decision-making among SMEs in rural and semi-rural Tanzanian settings. Aims: This study examined the relationship between financial literacy and investment decision-making among selected small and medium enterprises (SMEs) in Rombo District, Kilimanjaro Region, Tanzania. Specifically, it examined financial knowledge, saving behaviour and budgeting knowledge as dimensions of financial literacy associated with investment decision-making. Study Design: A convergent parallel mixed-methods approach was used within a cross-sectional research design. Methodology: The study population comprised 1,950 SME owners and operators. A quantitative sample of 132 respondents was determined using Yamane's formula; 128 completed questionnaires were usable, yielding a 96.9% response rate. Quantitative data were collected through structured questionnaires and analysed using descriptive statistics and multiple linear regression in SPSS Version 31. Semi-structured interviews with purposively selected SME owners and managers were analysed thematically and integrated with the quantitative findings. Results: Respondents demonstrated moderate to relatively good practical financial literacy. Regular financial record keeping received 66.4% combined agreement, while 65.6% reported being able to analyse financial information before making business decisions. Saving behaviour was less consistent: 47.7% agreed or strongly agreed that they regularly saved part of business income. Budgeting was comparatively strong, with 67.2% reporting that it helped avoid unnecessary spending and 61.0% reporting that it helped allocate resources efficiently. In the fitted regression model, budgeting knowledge (β = .488, t = 7.990, P < .001), financial knowledge (β = .218, t = 4.330, P < .001), saving behaviour (β = .217, t = 3.611, P < .001) and business experience (β = .076, t = 2.932, P = .004) were positively associated with investment decision-making. Age and education were not statistically significant. Conclusion: Financial knowledge, saving behaviour and budgeting knowledge were positively associated with investment decision-making among the selected SMEs. The findings highlight the importance of practical financial capabilities and business experience. Interpretation should nevertheless be cautious because the principal financial-literacy variables showed substantial multicollinearity and the fitted model used a regression-through-the-origin specification.