The Effect of Financial Literacy on the Viability of Micro and Small Enterprises: The Mediating Role of Community Culture the Case of Hawassa City, Sidama, Ethiopia

This study investigates the mediating role of the culture of resource utilization in the relationship between financial literacy and the viability of micro and small enterprises in Ethiopia the case of hawasa city. The research was motivated by persistent challenges in micro and small enterprises sustainability, often linked to poor financial management and inefficient resource use, despite numerous policy supports. The purpose of this study is to examine how financial literacy influences micro and small enterprises viability both directly and indirectly through cultural practices related to resource utilization concurrent explanatory research design was employed, utilizing Structural Equation Modeling for analysis. The study began with Exploratory Factor Analysis to identify valid constructs and followed with Confirmatory Factor Analysis to test the hypothesized model. Data were collected through surveys and supported by qualitative insights from focus group discussions and key informant interviews. Initial model testing showed poor fit, prompting modifications. The revised model exhibited strong goodness-of-fit indicators (CMIN/DF = 1.85, RMSEA = 0.045, CFI = 0.97), validating the proposed relationships. Findings revealed that financial literacy has a significant positive direct effect on MSE viability (β = 1.369, p 0.001) and also influences it indirectly through culture of resource utilization (indirect effect = 13.88). The total effect (15.249) indicates a partial mediation, highlighting the critical role of culture in enhancing the impact of financial knowledge. The study concludes that while financial literacy is vital, its full benefit is realized when coupled with efficient resource management culture. It recommends integrating financial literacy training with behavioral and cultural change programs targeting resource use norms in micro and small enterprises Owners.