Small effectively right question should be asked such

enterprises play a significant role in country’s economy in terms of low
rates of unemployment, contributing to the GDP of the country (unfortunately,
in Azerbaijan SMEs share in GDP is less than 10%) and ensuring sustainable
development. That is why the government, private and public sectors should be
interested in the continuous improvement of small businesses. To begin with,
financial literacy is the totality of the knowledge that improves
individual’s decision making and behavior in relations to money. Therefore,
financial illiteracy among entrepreneurs may lead to poor management of
recourses and possible negative effects on the success of the business.
Financial literacy includes knowledge about budgeting, cash management,
appropriate recording of business transactions and etc. Proper financial
knowledge helps business owners to track their revenues, net profits,
accounts receivable and payables, and expenses. As a result of this
knowledge, business owners are more likely to increase the profitability and
successfully manage their businesses. Also, financially literate
entrepreneurs can avoid principal-agent problem (in case the employee tries
to cheat the employer). Unfortunately, no studies have been conducted to
measure the level of financial literacy among SMEs (small and medium
entrepreneurship). However, the results of financial literacy survey among
households (AMFA, 2009) shows that they possess very limited information
regarding financial matters. As one of those households may decide to star
business or already have one, we may assume that he (or she) is going to deal
with difficulties in leading their enterprise due to insufficient financial
knowledge. Moreover, entrepreneurs with appropriate financial literacy can
correctly measure their financial threats and opportunities, make wise
decisions on getting loans from banks or the government. Thus, in the
long-term, nation with higher levels of financial literacy going to establish
and manage businesses effectively and live in economic prosperity. The
question emerges on how exactly small entrepreneurship is affected from the
financial illiteracy and what can be done in order to eliminate it. To
address the problem effectively right question should be asked such as “where
does the root of the problem come from?” In my opinion, financial literacy
knowledge and skills should be adopted by an individual from very early
stages of life. The first training should begin within the family. Therefore,
parents should be aware of the benefits of teaching their children to be
financially literate. This can be done through establishing mandatory classes
in schools for student’s parents. This training will include encouraging
parents to share their household finances with the children, to introduce
basic money concepts and give the opportunity to their children try to handle
the basic money calculations while shopping. Moreover, in schools, the
curriculum should include subjects such as management of cash flows on day to
day basis, household budgeting, basic knowledge on how to pay taxes and so
on. To measure the effectiveness of these efforts, special assessments should
be designed to find out if students attained any financial knowledge. And
last but not least, promoting “Business Strategy Game” in the universities,
especially for students whose major is Business Administration will be
significantly helpful in terms of gaining real-world business experience. In
ADA University, we have a class where game is introduced and we have a chance
to apply theoretical knowledge on it. Through game students learn budgeting,
tracking their cash flows within business, working with financial statements,
analyzing, forecasting and making decisions based on reports. As a result,
students obtain practical financial knowledge which they can use after
graduation and while leading a business. Small enterprises in Azerbaijan face
challenges when they try to find financial sources due to higher interest
rates and complexity of the process. Therefore, it is important for an owner
to correctly assess benefits and costs, especially during the period of
currency devaluation. In this case being financially knowledgeable is more
important because taking a loan without planning for a short and long-term
may have significant damage on the success of the business. In this case,
both commercial banks and government should have the interest to design
mandatory training where business owners have a chance to learn basic and
advanced concepts regarding borrowing, saving, investing and risk
diversification. Also, for effective learning of entrepreneurs’, initiative
could be provided such as lower interest rate on loan (or high chance of
getting preferential loans) or tax-free month for those small enterprises who
take training and get certification successfully. For example, in 2012 Pasha
Bank organized such seminar where business owners got to learn benefits of
having a positive credit history, and also how financial knowledge on
borrowing (such as interest rate and a time value of money) would ease the
process of taking a loan. In addition, promoting State Committee for
Securities during the seminars and training is helpful in a way that in the
future when small businesses need additional sourcing for further growth of
their entities, they can raise capital by issuing securities. Small
businesses sometimes neglect the keeping record of their revenues and
expenditures or they do it manually which can lead loss of the recorded
accounts, therefore, it is important that they learn the importance and usage
of electronic-based management of financial accounts. To overcome this issue,
MS Excel software training can be offered to the business owners. However, in
order this training to show effective results there should be some incentives
for individuals. For example, certification can be provided at the end of
training and in the future, they can use this certificate to take advantage
of preferential loans that government offers. Also, nowadays several online
businesses emerge through social media and a big portion of the initiators
are women. Women become entrepreneurs mainly in the field of clothing, beauty
products, and food industry which contributes to the economic development of
the country in that sectors. In order to those businesses to be sustainable
women should get educated on financial matters such as how to keep business
earnings account separate from the personal account, how to invest wisely,
and be more informed about the usage of the cash in the business. There is an
organization in our country called “WoWoman” which is involved in the process
of empowering women’s position in the society through organizing educational
and interactional activities. Thus, if government partners with this organization
and they design training on financial literacy for women, this can be
opportunity for further growth in their business. Moreover, entrepreneurs may
sometimes be overwhelmed by the information regarding the finances in their
business. Thus, if the government establishes a special organization which
offers financial advising, it will be both helpful to improve their business
decisions and financial literacy. The expense of such organization can be
covered with the donations of entrepreneurs to whom the financial advising
created the difference. It will be the win-win situation because owners can
save lots of money instead of using private business consultancy service, and
financial advising organization also will be able to maintain its service in
the long term. There is also a way to eliminate financial illiteracy among
small entrepreneurs even before they start the business. For instance, people
who want to get the license of their business should be assessed if they have
enough financial skills and knowledge to do so. Those who fail to meet the
necessary requirement can participate in financial training. After completing
it successfully, entrepreneurs can get the license and lead their business.
This process can be implemented with the help of ASAN service centers. As
this agency assigned to issuing business licenses, they can also collaborate
with interested government agencies to control the process of financial
knowledge assessment. Finally, the increase in the level of financial
literacy is known to have a positive effect on the economy in the long term
(Kalekye, 2015). However, government agencies should calculate the
costs and be sure that benefits of promoting financial literacy exceed those
costs. In order to prevent excess cost and have an impactful public campaign,
the study needs to be conducted among small entrepreneurs to learn what is
exactly their financial skill level and what needs to be done for further
improvement. References: 1. Increasing Financial Literacy. (n.d.). Retrieved
from,825/lang,en/%20+ 2.
Kalekye, P. N., & Memba, F. (2015). The Role of Financial Literacy on the
Profitability of Women Owned Enterprises in Kitui Town, Kitui County, Kenya .
International Journal of Science and Research (IJSR), 4(6), 2360–2365. 3.
Mirzeyev, S. (2012). Small and Medium Entrepreneurship in Azerbaijan; Country
Assessment . Center for Economic and Social Development (CESD) , 1–18. 4.
Gale, W. G., & Levine, R. (2010). Financial Literacy: What Works? How
Could It Be More Effective? , 1–31.


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