Nur Khusniyah Indrawati, Sri Muljaningsih, Himmiyatul Amanah Jiwa Juwita, A. Muhamad Jazuli, Nuraini Desty Nurmasari, Mochammad Fahlevi
Micro, small, and medium enterprises (MSMEs) have consistently served as significant contributors to economic growth, employment generation, and poverty alleviation. However, they persistently encounter challenges in terms of accessing adequate financial resources. Consequently, this study examines the impact of financial literacy and illiteracy on financing decisions among MSMEs by considering the mediating roles of risk tolerance and risk perception. To evaluate the proposed hypotheses, this study employs SmartPLS 3.0 for structural equation modeling, which uses data from 229 MSMEs in Gresik Regency, Indonesia. The findings indicate that financial literacy is a significant determinant of financing decisions both directly and indirectly through risk tolerance and risk perception. These results emphasize the importance of enhanced financial literacy in enabling MSMEs to utilize financing options more effectively, mitigate risks, and support business sustainability. Furthermore, this study contributes to the existing body of literature by focusing on financing decisions rather than investment decisions and elucidating the influence of financial literacy on firms’ decision-making processes in a developing country context. By exploring the under-examined contextual dimensions of risk tolerance and risk perception, this study presents actionable implications for policymakers and practitioners to foster MSME growth in alignment with the Sustainable Development Goals (SDGs). © 2025 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group.
Management Department, Faculty of Economics and Business, Universitas Brawijaya, Malang, Indonesia; Economics Department, Faculty of Economics and Business, Universitas Brawijaya, Malang, Indonesia; Management Department, BINUS Online, Bina Nusantara University, Jakarta, Indonesia; Operation Research & Management Sciences, Universiti Sultan Zainal Abidin (UniSZA), Malaysia
