Nanang Qosim

The Influence of Financial Literacy and Entrepreneurial Orientation on the Performance of MSMEs in Indonesia with Business Innovation as a Mediating Variable

Introduction

The influence of financial literacy and entrepreneurial orientation on the performance of msmes in indonesia with business innovation as a mediating variable. Investigating the influence of financial literacy and entrepreneurial orientation on Indonesian MSME performance, mediated by business innovation. Reveals positive effects crucial for sustainability.

Abstract

This study investigates the influence of financial literacy and entrepreneurial orientation on the performance of Micro, Small, and Medium Enterprises (MSMEs) in Indonesia, with business innovation acting as a mediating variable. A quantitative research design was employed, using data collected from 200 MSME owners and managers across diverse sectors through structured questionnaires based on a 5-point Likert scale. The data were analyzed using Structural Equation Modeling with Partial Least Squares (SEM-PLS 3.0). The results reveal that both financial literacy and entrepreneurial orientation have a positive and significant effect on MSME performance. Furthermore, business innovation significantly mediates the relationship between the two independent variables and business performance. These findings underscore the importance of financial capability, strategic entrepreneurial behavior, and innovation adoption in enhancing MSME sustainability and competitiveness. The study provides practical recommendations for policymakers and business development stakeholders to support integrated capacity-building efforts for MSMEs in Indonesia.

Review

This study presents a timely and relevant investigation into critical factors influencing Micro, Small, and Medium Enterprises (MSMEs) performance in Indonesia, specifically focusing on financial literacy, entrepreneurial orientation, and the mediating role of business innovation. The research addresses a significant gap by systematically examining these interrelationships, which are crucial for understanding MSME growth and sustainability in emerging economies. The quantitative design, employing Structural Equation Modeling with Partial Least Squares (SEM-PLS 3.0) on a dataset of 200 MSMEs, appears robust for testing the proposed mediation model, lending credibility to the findings. The clear articulation of the research objective and the use of an established methodology are commendable strengths, ensuring a solid foundation for the empirical analysis. The findings of this study offer valuable insights into the dynamics of MSME performance. It convincingly demonstrates that both financial literacy and entrepreneurial orientation directly and significantly enhance MSME performance. More importantly, the research highlights business innovation as a crucial mediating mechanism, underscoring that the positive effects of financial acumen and entrepreneurial drive are channeled, at least partially, through a firm's capacity for innovation. This provides a nuanced understanding of how these foundational elements translate into tangible performance improvements. The implications are profound for policymakers and business development stakeholders in Indonesia, emphasizing the need for integrated capacity-building programs that not only enhance financial literacy and foster an entrepreneurial mindset but also actively promote and facilitate innovation adoption among MSMEs to boost their competitiveness and long-term viability. While the study makes a significant contribution, a few points could be considered for further refinement or future research. The cross-sectional nature of the data, as suggested by the single data collection phase, limits the ability to infer causality definitively over time, and future longitudinal studies would be beneficial to track these dynamic relationships. Additionally, while the study covers "diverse sectors," a more granular analysis or discussion of sector-specific nuances might yield further insights into how these variables operate differently across various industries. The reliance on self-reported data from owners/managers, though common, could introduce potential biases, and triangulating with objective performance measures where possible would strengthen future endeavors. Nevertheless, this paper provides a strong foundation and a clear call for actionable strategies to empower Indonesian MSMEs through a holistic focus on financial capability, entrepreneurial zeal, and strategic innovation.

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