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CHAPTER ONE

INTRODUCTION

1.1      BACKGROUND OF THE STUDY

Take for instance Mr. Okon Etim, a middle-aged sole-proprietor who dropped out from primary school to start “pure water” business and now is a coca-cola dealer in Calabar. Mr. George Obi, a fresh University of Calabar graduate with a degree in business management who decides against going back home and starts up a hire-purchase “ke-ke” business in Calabar.

Allow me to point out however that while these are two small scale enterprises with a lot of potential, the later i.e Mr. George Obis’s has the “financial literacy advantage” as he must have gone through formal financial training in the course of his schooling against the former i.e. Chief Okon Etims’s who although has gained a lot of experience all the way from his pure water selling days but lacks formal financial training.

Financial literacy as the name implies occupies center stage in the quest to achieve an overall degree of success in an organization, (Bernhedm, 2008). Financial literacy or the lack of it has played a key role in the success and failure of our nations businesses for the past centuries. Therefore financial literacy enhances to a reasonable degree, a business’ goal of financial profit. This has encouraged companies and businesses to make sure that, adequate and proper books of account are kept, to ensure the reliability of their financial statements and, in the long run, improve their level of profitability.

Reducing the poverty rate as well as the reliance of the people on government and so called “white collar” jobs are part of the Millennium Development Goals (MDGs), these can be achieved through the growth and development of small scale enterprises.

The littleness of small scale businesses from the cradle has been the bedrock of industrialization in developing countries of the world. Globally, small enterprises have contributed enormously in improving the standard of living of the people by providing jobs to relieve the society of social embarrassment, stimulating indigenous entrepreneurship and utilizing scarce resources.

Small scale enterprises also play important roles in economic growth and development of every nation. They are a veritable vehicle for the achievement of national macro-economic objectives in terms of employment generation at low investment cost and enhancement apprenticeship training.

Furthermore, profit can analogously be viewed as the life-blood of a business and hence the accounting bases, concepts and principles adopted ought to capture and report all the relevant information to ensure reliability in its measurement (Nelson and Oiwas, 2011). Also Ewikaselu and Oyende (2009) made it clear that no business can work effectively without being financially literate and also having one form of accounting records or the other. It can therefore be deduced that appropriate financial literacy is important for a successful management of any business whether big or small.

Financial literacy is therefore said to be crucial and cannot be overemphasized as it enables small scale enterprises to be able to supply complete and relevant financial information needed to improve on decisions made by them, and also enhance their profitability. This research study therefore examines financial literacy and its influence on the profitability of small scale enterprises.

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