Thesis (Amended)

THE IMPACT OF DIGITAL FINANCIAL LITERACY
ON SUSTAINABILITY OF SMALL AND MEDIUM

ENTERPRISES (SMES) IN SRI LANKA: EVIDENCE
FROM COLOMBO DISTRICT
M T Thevasagayam
184499
BSc. (Honours) in Accountancy and Business Finance
Department of Accountancy
Wayamba University of Sri Lanka
September 2023
Declaration
I declare that this is my own work, and this dissertation does not incorporate without
acknowledgement any material previously submitted for a Degree or Diploma in any
other University or institute of higher learning and to the best of my knowledge and
belief it does not contain any material previously published or written by another
person except where the acknowledgement is made in the text. Also, I hereby grant to
Wayamba University of Sri Lanka the non-exclusive right to reproduce and distribute
my dissertation, in whole or in part in print, electronic or other medium. I retain the
right to use this content in whole or part in future works (such as articles or books).
……………………………...... ……………………………….
Signature Date
The above candidate has carried out research for the Dissertation under my
supervision.
…………………………………….. ………………………
Signature of the supervisor Date
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Abstract
Purpose –This research aimed to analyze the association between digital financial
literacy and sustainability of small and medium enterprises in Sri Lanka, evidence
from Colombo district. The economic crisis led SMEs to face failures, due to the
financial problems during this crisis. Digital financial literacy is valuable to SMEs,
which offers financial products and services through digital platforms. However, many
SMEs have lack of technological facilities, and the SME owners have inadequate
knowledge in financial literacy. There is dearth of studies conducted related to this
topic in Sri Lankan context. So, this study provides the importance of digital financial
literacy to the SMEs to overcome their difficulties in raising finance to ensure their
sustainability.
Study design / methodology / approach: The research used quantitative method by
collecting data through questionnaire survey from SMEs in Colombo district.
According to the Morgan table, 382 SMEs in Colombo district were selected as sample
and 195 responses were received using convenient sampling method due to the lack of
email facilities in SMEs. SPSS statistical software and Smart PLS were employed to
examine the data.
Findings: The results revealed that, digital financial literacy has a positive significant
association with sustainability of SMEs. Firm size has no moderating effect between
the association of digital financial literacy and sustainability of SMEs.
Research limitations / implications: This research limits its analysis by only
considering SMEs. The sample was drawn only from Colombo district. This study is
not based on cause-and-effect relationship because of the cross-sectional design.
Questionnaire method takes more time, and it shows low reliability.
Originality / Value: The study emphasizes the importance of digital financial literacy
to the sustainability of SMEs. This study highlights, having sound knowledge in digital
financial literacy will prevent SMEs from failures, and confirm their sustainability.
(Key words: Digital financial Literacy, Small and Medium enterprises, Sustainability
of SMEs)
ii
Acknowledgement
Performing this thesis would be an impossible task without the great support of my
supervisor Ms. D H S W Dissanayake. Her energy, expertise, and meticulous attention
to detail have been an inspiration to me and have helped me stay on track with my
work from our first meeting through the final copy of this report.
I especially thanks to the thoughtful criticism from the books and texts anonymous
peer reviewers. The kindness and knowledge of everyone have helped this study in
countless ways and prevented me from making many mistakes; those that unavoidably
remain are solely my fault.
Also, thanks to the management of our university and the professors, who worked hard
to help me succeed academically. Thank you to the management of the chosen small
and medium enterprises, the owners, and the entire workforce for allowing me to do
the research in a free and independent manner.
My heartfelt thanks to my friends and coworkers do to make my experience joyful in

every way. I also want to thank everyone who helped me succeed academically but
wasn't acknowledged in my work. Your input is worthwhile.
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Table of Contents
1 INTRODUCTION .............................................................................................. 1
1.1 Introduction ................................................................................................. 1
1.2 Background of the Study ............................................................................ 1
1.3 Motivation of the Study .............................................................................. 4
1.4 Problem of the Study ................................................................................... 5
1.5 Research Objectives .................................................................................... 7
1.6 Research Questions ..................................................................................... 7
1.7 Significance of the Study ............................................................................. 7
1.8 Scope of the Study ....................................................................................... 8
1.9 Limitations of the Study.............................................................................. 9
1.10 Chapter Organization ................................................................................. 9
1.11 Chapter Summary ....................................................................................... 9
2 LITERATURE REVIEW ................................................................................ 11
2.1 Introduction ............................................................................................... 11
2.2 Definitions .................................................................................................. 11
2.3 Theory......................................................................................................... 16
2.4 Empirical Evidence ................................................................................... 17
2.5 Measurement ............................................................................................. 22
2.6 Gap Analysis .............................................................................................. 28
2.7 Chapter Summary ..................................................................................... 33
3 METHODOLOGY ........................................................................................... 34
3.1 Introduction ............................................................................................... 34
3.2 Research Philosophy ................................................................................. 34
3.3 Research Approach ................................................................................... 35
3.4 Methodological Choice .............................................................................. 35
3.5 Research Strategy ...................................................................................... 36
3.6 Time Horizon ............................................................................................. 37
3.7 Data Collection .......................................................................................... 37
3.8 Population and Sample ............................................................................. 38
3.9 Conceptual Framework ............................................................................ 38
3.10 Operationalization of Variables ............................................................... 39
3.11 Hypothesis .................................................................................................. 40
3.12 Data Analysis ............................................................................................. 40
3.13 Chapter Summary ..................................................................................... 41
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4 DATA PRESENTATION AND ANALYSIS .................................................. 42
4.1 Introduction ............................................................................................... 42
4.2 Demographic Profile ................................................................................. 42
4.2.1 Age of the Owner................................................................................ 43
4.2.2 Gender ................................................................................................. 43
4.2.3 Educational Qualification .................................................................. 44
4.2.4 Summary of Demographic Information........................................... 44
4.3 Business Profile .......................................................................................... 45
4.3.1 The Sector of SMEs ............................................................................ 45
4.3.2 Number of Years in the Industry...................................................... 47
4.3.3 Summary of Business Profile ............................................................ 47
4.4 Frequency Analysis of Variables.............................................................. 48
4.4.1 Digital Financial Literacy (DFL) ...................................................... 48
4.4.2 Sustainability ...................................................................................... 51
4.5 Descriptive Analysis .................................................................................. 53
4.6 Correlation Analysis.................................................................................. 54
4.7 Model 1 – Association between all sub variables .................................... 54
4.7.1 Assessment of Measurement Model/ Outer Model ......................... 54
4.7.2 Construct Validity and Reliability.................................................... 55
4.7.3 Convergent Validity ........................................................................... 55
4.7.4 Discriminant Validity ........................................................................ 57
4.7.5 Assessment of Structural Model/ Inner Model ................................ 58
4.7.6 Hypothesis Testing ............................................................................. 59
4.7.7 Effects Size (f2) .................................................................................... 60
4.8 Model 2: Association between DFL and CS ............................................ 61
4.8.1 Assessment of Measurement model/ Outer model .......................... 61
4.8.5 Assessment of Structural Model/ Inner Model ................................ 64
4.8.7 Effects Size (f2) .................................................................................... 66
4.9 Model 3 – Association between DFL and EC, EN, SS............................ 66
4.9.1 Assessment of Measurement model/ Outer model .......................... 66
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4.9.5 Assessment of Structural model/ Inner model ................................ 68
4.9.7 Effect Size (f2) ..................................................................................... 68
4.10 Moderator Analysis ................................................................................... 69
4.11 Key Findings .............................................................................................. 71
4.12 Discussion on Findings .............................................................................. 71
5 CONCLUSIONS AND RECOMMENDATIONS ......................................... 76
5.1 Introduction ............................................................................................... 76
5.2 Conclusions ................................................................................................ 76
5.3 Theoretical Implications ........................................................................... 76
5.4 Implications for practitioners ................................................................... 77
5.5 Limitations and Future Research ............................................................ 78
5.6 Recommendations ..................................................................................... 78
6 REFERENCES.................................................................................................. 80
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List of figures
Figure 1: Conceptualization of variables ................................................................... 38
Figure 2: Gender - Frequency .................................................................................... 43
Figure 3: Frequency chart of sector of SMEs ............................................................ 45
Figure 4: Basic Knowledge and skills – frequency data ............................................ 49
Figure 5: Self-protection frequency of data ............................................................... 51
Figure 6: Measurement Model 1 ................................................................................ 58
Figure 7: Structural Model 1 ...................................................................................... 61
Figure 8: Measurement Model 2 ................................................................................ 64
Figure 9: Structural model 2 ...................................................................................... 65
Figure 10: Measurement model 3 .............................................................................. 67
Figure 11: Structural Model 3 .................................................................................... 69
Figure 12: Moderator analysis model 1 ..................................................................... 69
Figure 13: Moderator Analysis model 2 .................................................................... 70
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Abbreviations
AW: Awareness
BK: Basic Knowledge and Skills
DFL: Digital Financial Literacy
DM: Decision Making
EC: Economic Sustainability
EN: Environmental Sustainability
PK: Practical Know how
SME: Small and Medium scale Enterprises
SP: Self-Protection
SS: Social Sustainability
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List of Tables
Table 1: Definition of digital financial literacy.......................................................... 11
Table 2: Definition of financial literacy ..................................................................... 12
Table 3: Definition of Sustainability .......................................................................... 14
Table 4: Empirical Evidence ...................................................................................... 17
Table 5: Measurement of past research variables ...................................................... 22
Table 6: Gap analysis ................................................................................................. 28
Table 7: Operationalization of variables .................................................................... 39
Table 8: Frequency of Age of the owner ................................................................... 43
Table 9: Frequency of educational qualifications ...................................................... 44
Table 10: Summary of demographic variable frequency ........................................... 45
Table 11: Table of sector of SMEs ............................................................................ 46
Table 12: Table of frequency data of no of years in the industry .............................. 47
Table 13: Summary data of business profile .............................................................. 47
Table 14: Frequency data of awareness ..................................................................... 49
Table 15: Frequency data of practical know how ..................................................... 49
Table 16: Frequency data of decision making ........................................................... 50
Table 17: Economic sustainability frequency of data ................................................ 51
Table 18: Social sustainability frequency of data ...................................................... 52
Table 19: Environmental sustainability frequency of data ........................................ 52
Table 20: Descriptive statistics of variables .............................................................. 53
Table 21: Correlation Matrix ..................................................................................... 54
Table 22: Convergent validity Model 1 ..................................................................... 55
Table 23: Discriminant Validity (Fornell & Larcker) model 1 .................................. 57
Table 24: Coefficient of Determination (R2) model 1 ............................................... 58
Table 25: Hypothesis Testing model 1....................................................................... 59
Table 26: Effect size f2 model 1 ................................................................................. 60
Table 27: Reflective Measurement model 2 .............................................................. 62
Table 28: Discriminant validity (Fornell-Larcker) – model 2 ................................... 63
Table 30: Hypothesis Testing model 2....................................................................... 65
Table 31: Effect size f2 model 2 ................................................................................. 66
Table 32: Convergent validity model 3...................................................................... 66
Table 33: Discriminant validity model 3 ................................................................... 67
Table 35: Hypothesis testing model 3 ........................................................................ 68
Table 36: Effect Size (f2) model 3.............................................................................. 68
Table 37: Moderator Analysis model 1 ...................................................................... 70
Table 38: Moderator Analysis model 2...................................................................... 70
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1 INTRODUCTION
1.1 Introduction
Now Sri Lanka faces the worst economic crisis which started in 2019 since its
independence in 1948. As a result, Sri Lanka is declared as “Bankrupt”, which ranked
3rd of high inflation countries with 54.6% inflation in June 2022. There are many
challenges faced by SMEs due to this bankruptcy such as, shortage of raw materials to
continue business activities, disruptions in transportation facilities to send products to
the market due to shortage of fuel, and difficulties in obtaining raw materials from
abroad due to lack of foreign exchange. Digital financial literacy is one of the
important aspects which helps organizations to deliver their financial products and
services via digital platforms and consumers can access financial transactions through
digital devices. SMEs need sufficient knowledge in digital financial literacy to offer
digital financial services and raise its finance to compete with their rivalries and sustain
in the current situation of our country. This research aims to examine the impact of
digital financial literacy on sustainability of small and medium scale enterprises.
The rest of the research is organized as follows. Section 1.2 explains about the
background of the small and medium enterprises sustainability. Section 1.3 describes
the motivation of the study and section 1.4 analyses about the problems of the study.
The next sections introduce the research objectives and research questions. Section 1.7
is about describing the research area’s significance; section 1.8 clarifies about the
scope of the study. Lastly, the limitation of the study is included in 1.9.
1.2 Background of the Study

Small and Medium Enterprises (SME) are the businesses which include lower level of
employees, assets, and capital when compared to large entities. SMEs support to global
economic development and growth by providing various benefits. SMEs create various
job opportunities because they use labor intensive production techniques. Also, they
have the potential to cause employment opportunities at low capital expenditure. SMEs
increase the competition among entities which create market efficiency, as well as
productivity by bringing out the best products and services of the business. SMEs are
more flexible compared to large entities as they adapt to the changes very quickly.
Small and Medium scale enterprises create innovation and experiment with new ideas.
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They adapt to the new trends and make new innovations in their production techniques
as per the changing environment. SMEs contribute to the growth of several sectors like
manufacturing, agriculture, ICT services etc. there is a positive relationship between
SMEs and economy because creation of more SMEs boost economic development.
Therefore, SMEs are considered as backbone of the economy.
SMEs represent about 90% of businesses and more than 50% of employment globally.
Formal SMEs contribute up to 40% of national income in developing countries. Nearly
90% of SMEs increase employment rate in developed and developing economies.
However, most of the SMEs meet high rate of failure, because of several reasons such
as; financial issues, poor management and regulation, lack of market research, lack of
resources (technology, skilled labor), high level of employees’ absenteeism, lack of
information exchange and so on. Financial issue is the main challenge faced by SMEs
worldwide. Because SMEs mostly do not depend on bank loans like large firms,
instead of that they rely on internal financing like obtaining money from family and
friends to run the business. According to the estimation of “The International
Corporation (IFC)”, there are 40% of formal small and medium enterprises have
financial problems of USD 5.2 trillion every year (The World Bank, 2022).
Small and Medium scale businesses fail due to inadequate management. Mostly,
business owner is the only person who is in the senior position in SMEs. So, the
business owner must have the necessary skills and knowledge to manage business
activities and take effective decisions. Market research is important before venturing
into new business. But many entrepreneurs start new businesses without proper market
analysis. This leads to less competitive, lack in pricing products and low profit. Most
of the SME firms run with few employees compared to large businesses. So the
business activities can be affected if the workers do not have sufficient skills. SME
businesses result in loss of productivity due to the unskilled work force. Another
problem is SMEs have poor knowledge in technology. SMEs struggle financially for
getting the most up to date software for the business. Also, many SME firms do not
have their own websites. In this digital world many customers prefer online sales and
e-commerce services. Having strong technology facilities is required for business
sustainability. So, lack of technology is a problem for SMEs sustainability. Finally,
SMEs face information asymmetry problem due to lack of information infrastructure.
2
In Sri Lanka, businesses that have employees not more than 300 and revenue not more
than 750 million LKR are considered Small and Medium Enterprises. SMEs account
for over 80% of the total number of entities, provide 45% of national employment, and
contribute to 52% of the GDP. SMEs carry their business in all sectors such as
manufacturing, services, construction, agriculture, and trading businesses. There are
90% of SME establishments in the agricultural sector, 20% of SME establishments in
the industrial sector, and more than 90% of SME establishments in the service sector.
According to the Ministry of Industry and Commerce (2016) estimation, around 45%
of employment is contributed by SMEs in Sri Lanka. (Sri Lanka Export Development
Board, 2021) Recently, the Colombo Stock Exchange and Securities and Exchange
Commission of Sri Lanka appointed a board named “Empower” to support SMEs to
raise their capital for their growth needs. The board improves its visibility and helps
to attract more financiers to this sector (Colombo Stock Exchange, 2020).
For developing economies, having a powerful SME sector is essential for economic
development. But SMEs face sustainability issues due to economic instability,
changing exchange rates, higher cost of transaction, political issues and lack of
knowledge. By considering those, SMEs mostly have problems in finance sector.
Financial literacy is the essential to the SMEs to improve business performance and
achieve sustainability. Because financial literacy is about understanding business’
finance and it helps to make right finance decisions. Financial literacy improves the
knowledge of understanding of financial products, financial risk, and financial market
opportunities. In this digital world, technology plays vital role in every business
sectors. SMEs are owned by single owner/ few owners, and they need to take relevant
decisions regarding their business. Therefore, having a technology utilization and
financial literacy can increase the rational decision-making process.
Digitalization has created a new environment for businesses to operate and offer
products and services via internet using digital platforms. Digital financial literacy is
an important aspect in every organization to sustain in the digital corporate world.
Digital financial literacy allows businesses to deliver financial services through digital
platforms and run businesses via digital devices like smartphones. It can make
borderless financial services, so people can easily access financial products and
services in other nations. Digital financial literacy provides number of ways in which
customers can invest money, helps in avoiding fraud; because we can easily identify
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risks and protect the financial information, and it encourages money management
skills. Nowadays, everyone prefers cashless transactions. Mobile and other smart
devices are considered as the medium of cashless transactions. SMEs need to adopt
digital financial literacy to access resources and new knowledge, as well as they need
to adjust their networking capabilities to increase the financial performance and remain
competitive in the changing corporate market. However, many businesses particularly
SMEs face a lack of knowledge in financial literacy. SMEs in the developing countries
like Sri Lanka, often struggle by the financial problems. So, adopting digital financial
literacy assists SMEs to fast and safe practices such as mobile payments, money
transfers etc. By considering the current situation of the country, many SMEs left from
the sector due to economic crisis effects. So, adapting digital financial literacy will
help SMEs to avoid financial problems and improve their sustainability.
1.3 Motivation of the Study

At present, Sri Lanka experience bankruptcy. Many businesses stop their business
activities due to the prevailing situation of the country. Small and Medium Enterprises
are considered as drivers of the economy. Because SMEs provide more employment
opportunities and help to reduce the poverty. Now the country faces economic
recession, many SMEs struggle to run their business and face instability. But SMEs
sustainability is essential to our country at this bankrupt situation because SMEs help
our country to recover from this economic crisis.
In this critical situation, many organizations use software applications and digital
platforms to deliver their financial products and services to their customers.
Nowadays, financial products and services are offered online via digital devices such
as smartphones and laptops. With the growth of technology consumers are familiar
with online transactions and they can do financial transactions via SMS, email
communication and online. The organizations provide consumers with a comfortable
way to complete their financial commitments while working on their own schedule. In
the digital age, digital financial literacy is the important aspect because everyone
become more responsible for their own financial planning,
However, SMEs pay less attention towards digital financial literacy, as they face
struggle in accessing finance, so they are unable to invest in technology devices and
4
up to date software packages to deliver their financial products and services via online.
Most of the SMEs do not have their own websites because of the lack of technology
knowledge and low level of resources. Nowadays, many supportive programs focus
on SMEs to assist their financial issues and improve their resources. Financial literacy
is an important aspect to SMEs to get required capital. Knowledge in digital financial
literacy might lead to an increase in the acquisition of capital through online savings,
online trade, and internet banking. Using digital platforms to transactions would
improve SMEs’ performance and ensure their sustainability. So, implications of digital
finance literacy for the sustainability of SMEs are one of the solutions for the country’s
current condition. Therefore, I motivated to take this topic and analyze furthermore.
1.4 Problem of the Study

Small and Medium Enterprises mostly face sustainability problems worldwide. Many
SMEs experience high level of insolvency and finance issues. As a result, most of the
SMEs fail compared to large entities. SMEs are not able to make better relationship
with suppliers, because suppliers supply good quality of raw materials to large firms.
SMEs are not able to attract customers towards their product and services, because
customers are price sensitive and large firms can attract them by providing price
discounts. So, these kinds of problems affect profitability of SMEs. Another
significant challenge is competition. Large organizations dominate the markets and
SMEs have lack of strength and resources to compete with large firms. In addition,
poor management and leadership skills, less training and welfare to employees,
unskilled workers and lack of information available are some struggles faced by every
SMEs. Therefore, SMEs face many obstacles to sustain in the corporate world
(Mensah, 2011).
There are no doubt that small and medium enterprises suffer during the time of
economic crisis. Nowadays Sri Lanka experiences bankruptcy and many SMEs face
several problems due to that. SMEs are not able to import raw materials from abroad
due to forex storage, as well as they cannot purchase required inputs due to increasing
prices. As a result, the SMEs suffer high cost of production. The business activities of
SMEs are collapsed because of power cuts, limited products availability, fuel shortage
and increasing transportation costs. As a result, many small and medium scale firms
left the sector, and many people lose their jobs due to this crisis.
5
Financial Literacy is considered as a major contributor to the growth of the economy
and the financial system stability. Financial literacy helps in effective use of financial
resources. It will increase the household income, so the economic wellbeing is
maximized. In Sri Lanka and in many developing countries financial literacy is
significantly low. The ‘Financial Literacy Survey in Sri Lanka – 2021’ a publication
of the Central Bank of Sri Lanka reveals that, 57.9% of adults are financially literate
in Sri Lanka.
Financial literacy is vital for Small and Medium Enterprises to budget business
activities, manage expenses, make effective decisions about investments, and to meet
capital requirements. At present, many SMEs in Sri Lanka obtain loans for funding
capital, and they pay high interest rates. Its end up with business failure due to heavy
debt. If the SMEs discontinue their business activities, the country’s productivity starts
declining. In this current country crisis, the living standards will deteriorate, and the
economy will get worse. So, the entrepreneurs must have a good idea about financial
market behavior, financial product availability, cost management, borrowing,
investments etc.
Digital financial literacy helps businesses in ease of access of financial transactions

via online with the use of digital devices. It makes borderless financial transactions, so
business can grow very fast. However, in developing countries like Sri Lanka, the
adaptation of digital financial literacy by SMEs remains low, because of acquiring
digital devices and software applications is difficult to SMEs due to cash flow
problems. As Sri Lanka experiences hyperinflation these days, many SMEs went
bankrupt, so they could not bear high cost in adopting digital platforms.
There are related research studies have been done previously in many countries such
as India, Kenya, Malaysia, UK, Ghana, etc. Prisca Chepngetich (2016) analyzed the
relationship between financial literacy and performance of SMEs in Kenya. Francis
Mukatia Asakania (2016), investigated the influence of financial literacy on
performance of SMEs in Kenya. Sajiah Yakob et al. (2021), examined influence of
financial literacy on the performance of SMEs in Malaysia.
However, in Sri Lanka, there are dearth of studies found related to this topic. Jianmu
Ye, KMMCB Kulathunga (2019), studied the role of financial literacy in SMEs’
sustainability in Sri Lanka. K.M.M.C.B. Kulathunga et al. (2020), analyzed the
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influence of techno-finance literacy on SME performance. This research uses
questionnaire method to analyze data. Therefore, this study tries to fill the gap and find
the impact of digital financial literacy on SMEs sustainability in Sri Lanka.
1.5 Research Objectives

Main Objective
1. To analyze the association of digital financial literacy and sustainability of SMEs

in Sri Lanka.
Sub Objectives
1. To examine the association of digital financial literacy and economic
sustainability.
2. To examine the association of digital financial literacy and social sustainability.
3. To examine the association of digital financial literacy and environmental
sustainability.
1.6 Research Questions

Main Question
1. What is the association between digital financial literacy and sustainability of

SMEs in Sri Lanka?
Sub Questions
1. What is the association between digital financial literacy and economic

sustainability of SMEs in Sri Lanka?
2. What is the association between digital financial literacy and social sustainability
of SMEs in Sri Lanka?
3. What is the association between digital financial literacy and environmental
1.7 Significance of the Study

Empirical Significance
7
Now Sri Lanka faces worst economic crisis. It disturbs many organizations to run their
business activities smoothly and collapses their sustainability. The ongoing crisis leads
the small and medium enterprises to shut down the business due to increasing prices
of raw materials, power cuts, and shortage of fuel and gas supply. To overcome these
problems, SMEs must move from traditional business to digital trading. They need to
adopt digital financial literacy to their stability in this crisis. The sustainability of small
and medium enterprises is very essential at the current situation of the country to
rebuild the economic stability.
There is a dearth of studies conducted in this area in Sri Lankan context. This research
supposed to bridge the empirical gap. So, this is the empirical significance of the study.
Practical Significance
There are many challenges faced by SMEs and this study will help to overcome the
challenges. By adapting digital financial literacy within the organization will help
owners of the SMEs to improve the financial choices in investments. This study helps
managers to take good decisions regarding the effective use of financial resources and
reduce the financial risks. Also, it boosts productivity and increase sales with the help
of digital platforms. This study is important to the SMEs to find proper ways to ensure
long term sustainability, growth and employment creation.
This study will be useful for the future researchers to conduct more research by
identifying research gaps.
1.8 Scope of the Study

Small and Medium Enterprises are the business entities which maintain assets, revenue
and number of employees below a certain level. The definition of SMEs is different
from country to country. In Sri Lanka, SMEs are the business entities which maintain
its number of employees not more than 300 and revenue not more than 750 million
LKR. In our country, SMEs are defined using two criteria such as number of
employees and revenue. So, the scope of the study is finding the importance of digital
financial literacy for the sustainability of SMEs by analyzing the criteria of number of
employees.
8
1.9 Limitations of the Study
This study analyses the digital financial literacy and sustainability of small and
medium enterprises in Sri Lanka. This research limits its analysis by only considering
the Small and Medium Enterprises in Sri Lanka. This study uses questionnaire method
to collect data. It takes more time to collect data from respondents and the reliability
is low because respondents may be biased. Further, this study is based on cross
sectional studies by focusing one specific time period.
1.10 Chapter Organization

This entire research divided into 6 chapters. The 1st chapter gives an introduction to
this study, and analyses the background, research problem, motivation, scope etc.
The 2nd chapter evaluates the literature. It studies the previous researches conducted in
this area, and examines the definitions, theory, variable measurement and research gap
from the past researches.
3rd chapter focuses on research methodology. It concentrates on data collection
methods, data analysis, Operationalization of variables and hypothesis.
Chapter 4 analyses the data of the variables and discusses the findings and results.
Further, it connects the results with the research objective and hypothesis.
Chapter 5 provides the theory implications, implication for social practitioners,
limitations of this study, and suggestions for future researchers. Also, this chapter
gives some recommendations and conclusions for this research.
At last, chapter 6 lists the references which have been used to conduct this study.
1.11 Chapter Summary

This first chapter provided the introduction to the research topic. Background of the
study discussed about SMEs’ current status in worldwide and the challenges faced by
SMEs. Moreover, it talked about Sri Lankan economic crisis and its impact on SMEs
sustainability. The background of the study recommended digital financial literacy as
a solution for SMEs to ensure their sustainability during the economic crisis. Further,
this chapter discussed about the research problem in worldwide and Sri Lankan
context. This study set out research questions and objectives, and dealt with motivation
of the study, significance and limitations. Overall, his chapter provided a clear
understanding about the research topic.
9
Next chapter talks about literature review which is going to analyze the theories,
empirical evidence, measurement and gap analysis of the past research studies related
to this topic.
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2 LITERATURE REVIEW
2.1 Introduction
This chapter is about providing an overview of the previously published research
studies related to the research topic. Here, we examine the relatability of past
researches to our research study. This chapter analyses the objective, theories,
variables used, hypothesis, results and findings of the past researches conducted in
worldwide and Sri Lankan context related to the topic.
This chapter is organized as follows. The next section 2.2 presents the definitions of
Digital financial literacy, Financial literacy and Sustainability from related articles and
section 2.3 explains about the theories. Section 2.4 provides the empirical evidence
and discusses the findings of the research articles. Section 2.5 analyses the variables
used in the articles and how they measured. The last section 2.6 identifies the research
gaps in the previous articles and explains about them.
2.2 Definitions
Digital Financial Literacy
Table 1: Definition of digital financial literacy
Author Definition
The Bangko Sentral ng Pilipinas (BSP) Ability of a consumer to use a variety of
DFS with self-assurance and full trust in
their benefits.
AFI Network Acquiring the knowledge, skills,
confidence and competencies to safely
use digitally delivered financial products
and services (The AFI Network, 2021).
Prasad and Meghwal (2018) knowledge of the online systems of
spending and saving through online
payment and banking (Prasad et.al,
2018).
Morgan et al. (2019) Knowledge about how to use digital
financial services (Morgan et al, 2019).
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There is no widely accepted definition for Digital Financial Literacy (DFL). The
Bangko Sentral ng Pilipinas (BSP), the central bank of the Philippines, defines digital
literacy as a “competency in relation to financial literacy. It defines digital literacy is
the ability of a consumer to use a variety of DFS with self-assurance and full trust in
their benefits”. The AFI network defines Digital Financial Literacy as “acquiring the
knowledge, skills, confidence and competencies to safely use digitally delivered
financial products and services, to make informed financial decisions and act in one’s
best financial interest per individual’s economic and social circumstance. Therefore,
DFL is a multi-dimensional concept which integrates financial literacy, financial
capability and digital literacy” (The AFI Network, 2021).
Prasad and Meghwal (2017), defined digital financial literacy as “directly link or
knowledge of online purchasing, online payment through different modes, and online
banking system” (Prasad et al, 2018). According to Morgan et al. (2019), digital
financial literacy is a “knowledge about how to use digital financial services (DFS).
This includes familiarity with digital financial products and services; awareness of
digital financial risks; knowledge of digital financial risk management; and familiarity
with consumer rights and redress procedures” (Morgan et al, 2019)
So, we can say digital financial literacy as a knowledge and ability of using digital
devices in order to access digital financial products and services, get awareness of
digital financial risks and make effective digital financial decisions.
Financial Literacy
Table 2: Definition of financial literacy
Year Author Definition

2000 Vitt et al. Ability to read, analyze, manage and
communicate about personal financial
positions that affect life (Vitt et al, 2000)
2005 Worthington Ability to evaluate and make effective
decisions of money (Worthington A.C, 2006).
12
2010 Huston Awareness and knowledge as well as financial
instruments and is needed in business and daily
life (Huston S.J, 2010).
2012 Sohn et al. Knowledge and skills needed to handle
financial challenges. (Sohn et al, 2012).
2013 Eresia dan Raath Ability to make appropriate financial-related
decisions (Erasia, 2013)
2020 Winarsih, Ability and knowledge of finances of a person
Mutoharoh, Emisa has to manage his certain amount of money
Tahar, Inayah Abdul (Winarsih, 2020).
Aziz
2022 Prete Capacity to comprehend the fundamentals of
economics and finance to make personal
financial decisions (Prete, 2020).
2022 Daud et al. Ability to manage and solve financial problems
(Daut et al, 2022).
Vitt et al. (2000), defined financial literacy as “the ability to read, analyze, manage and
communicate about personal financial positions that affect life”. These include the
ability to differentiate financial options, discuss financial and money issues without
discomfort, plan for the future and respond efficiently to matters affecting daily
financial decisions or matters affecting the economy in general (Vitt et al, 2000).
Similar to the previous, Worthington (2005), defined financial literacy as “ability to
evaluate and make effective decisions about the use and management of money”
(Worthington A.C, 2006). In addition to the previous definitions, Huston (2010),
added, “Financial literacy is awareness and knowledge as well as financial instruments
and is needed in business and daily life”. Financial literacy also includes the ability to
balance bank accounts, budgets, savings for the future, and strategies for managing
debt (Huston S.J, 2010). Further, Sohn et al. (2012) described “financial literacy is the
knowledge and skills needed to handle financial challenges and make decisions about
finances in daily life” (Sohn et al, 2012). According to Eresia dan Raath (2013), the
author stated, “Financial literacy is seen as the ability to make appropriate financial-
related decisions and plan for future financial needs” (Erasia, 2013).
13
Winarsih et al. (2020) defined financial literacy as “the ability and knowledge of
finances of a person has to manage his certain amount of money in order to improve
his life standard”. Therefore, financial literacy is related to behavior, habits and
external factors. (Winarsih, 2020) According to Prete (2020), “financial literacy is the
capacity to comprehend the fundamentals of economics and finance to make personal
financial decisions” (Prete, 2020). In addition to that, Daud et al. (2022) described
financial literacy as “the ability to manage and solve financial problems, as well as the
behavior and mindset that influence an individual's financial situation for the better”
(Daut et al, 2022).
From the above mentioned definitions, we can define financial literacy as ability and
knowledge about financial instruments in order to make efficient and effective finance
related decisions.
Sustainability
Table 3: Definition of Sustainability
Year Author Definition

1987 GH Brundtland Sustainable corporate development
meets the corporate needs of the
present without compromising the
ability of future generations of
corporations to meet their own needs
(GH Bruntland, 1987).
1995 Gladwin, Kennelly, and Process of achieving human
Krause development (Gladwin, T.N., 1995).
2005 Szekely and Knirsch Building a society in which a proper
balance is created between economic,
social, and ecological aims (Székely
F, 2005).
2006 Neubaum and Zahra Ability of a firm to nurture and support
growth by meeting the expectations of
diverse stakeholders (Neubaum, D.O,
2006)
14
2012 Valente Process of equitably including a
highly interconnected set of
seemingly incompatible social,
ecological, and economic systems
(Valente, M., 2012).
2020 Winarsih, Mutoharoh, Emisa State or condition where there are
Tahar, Inayah Abdul Aziz ways to maintain, protect and develop
the resources of business (Winarsih,
2020).
According to Brundtland commission (1987), “corporate sustainability is meeting the

needs of a firm’s direct and indirect stakeholders without compromising its ability to
meet the future stakeholders as well. To achieve this goal, firms have to maintain their
economic, social and environmental capital base while actively contributing to
sustainability in the political domain.” (Dyllick et al, 2002)
Gladwin, Kennelly, and Krause (1995) defined sustainability as, “a process of

achieving human development in an inclusive, connected, equitable, prudent, and
secure manner”. According to Szekely and Knirsch (2005), “sustainability is building
a society in which a proper balance is created between economic, social, and ecological
aims. For businesses, this involves sustaining and expanding economic growth,
shareholder value, prestige, corporate reputation, customer relationships, and the
quality of products and services”. Further, Neubaum and Zahra (2006) stated that,
“sustainability is the ability of a firm to nurture and support growth over time by
effectively meeting the expectations of diverse stakeholders”. Moreover, Valente
(2012), defined it as “an ongoing process of equitably including a highly
interconnected set of seemingly incompatible social, ecological, and economic
systems through collaborative theorization of coordinated approaches that harness the
collective cognitive and operational capabilities of multiple local and global social,
ecological, and economic stakeholders operating as a unified network or system”
(Delgado-Ceballos, 2014).
In addition to the above definitions, Winarsih et al. (2020) defined business

sustainability as a state or condition where there are ways to maintain, protect and
15
develop the resources of business. He further said business sustainability is a form of
consistency in business condition, and it is supported by several factors. They are: the
compilation of a business plan, regular business plan updates, analyzing the
competitors, the ease of entering a new business and the ability to consider risks
(Winarsih, 2020).
2.3 Theory
Resource Based Theory
According to this theory, resources are considered as the most significant factor that
helps to improve firm performance and make competitive environment. It includes the
resources such as finance, people, technology and physical resources. According to the
theory, these resources should be high demandable, re-producible, and limited. The
theory states the firm’s performance will be improved if the firm has adequate
resources itself. Digital finance is a modern term which is followed by every
organization in this digital era. Adapting digital finance to business will bring more
customers that lead to more sales and profit. Using digital platforms to do business
operations will be more beneficial to generate finance. These platforms are
reproducible, very fast and easy to use. According to the resource based theory,
resources should impact on business performance. Using digital finance will improve
the business performance such as sales, profit and etc.
Financial decisions plays a significant part in business operations. These decisions

effect on company profitability, long term growth and sustainability. As per financial
literacy theory, business performance will be high when all the required resources are
available. Having sufficient financial resources will be beneficial in getting other
resources. For an instance, if a firm has adequate financial resources, it is able to get
fixed assets, technological upgrades etc. If a firm enjoys high sales and profit, it is able
to get more human resources. According to this theory, organizations with digital
finance resources will be able to match economic trends. Adoption of digital finance
platforms by SMEs will improve their business performance and reduce financial
problems (Stephanie Efua Frimpong, 2022).
16
2.4 Empirical Evidence
Table 4: Empirical Evidence
Author Title Findings

Prisca Chepngetich Effect of Financial Significant effect of
(2016) Literacy and Performance borrowing financial
SMEs. Evidence from literacy and budgeting
Kenya. financial literacy on SME
performance.
Francis Mukatia Influence of financial Performance of SMEs is
Asakania (2016) literacy on performance of greatly affected by the
Small and Medium combined effect of
Entreprises: A case of budgeting skills, record
Butere sub county keeping skills, credit
Kakamega county Kenya. management skills and tax
compliance skills.
Juma Buhimila Mabula, Use of Technology and Significant relationship

Han Dong Ping (2018) Financial Literacy on between the firm use of
SMEs Practices and technology to its practice
Performance in Developing of record keeping and
Economies performance, a significant
positive association of
financial literacy and firm
risk management
practices.
Jianmu Ye, KMMCB How Does Financial Financial literacy has a
Kulathunga (2019) Literacy Promote positive effect on SMEs
Sustainability in SMEs? A sustainability.
Developing Country
Perspective.
17
K.M.M.C.B. How Does Technological Technological
Kulathunga, Jianmu Ye, and Financial Literacy literacy and financial
Saurabh Sharma, P.R. Influence SME literacy have a direct and
Weerathunga (2020) Performance: Mediating positive impact on ERM
Role of ERM Practices. practices and SME
performance.
Winarsih, Mutoharoh, The Role of Fintech and Financial literacy in the

Emisa Tahar, Inayah Financial Literacy on relationship between
Abdul Aziz (2020) SMEs Sustainability. fintech and business
sustainability is
significant.
Sajiah Yakob and Financial Literacy and Financial literacy has a
Roslida Zalila Ahmad Financial Performance positive and significant
Rusli, Rubayah Yakob of Small and Medium- impact on SMEs’
and Hafizuddin-Syah, sized Enterprises. performance.
B.A.M. (2021)
Stephanie Efua Financial literacy, access to Financial literacy

Frimpong, Gloria digital finance and positively affects access to
Agyapong and Daniel performance of SMEs: digital finance. Access to
Agyapong (2022) Evidence From Central digital finance mediates
region of Ghana. the relationship between
financial literacy and SME
performance.
Imelda T. Angeles The Moderating effect of Digital financial services
(2022) Digital and Financial do not have a significant
Literacy on the Digital influence on the financial
Financial Services and behavior of the owners of
Financial Behavior of MSMEs.
MSMEs.
Ni Putu Rika Puspa Financial literacy Financial technology
Astari and Ica Rika moderates the effect of (Fintech) has a positive
Candraningrat (2022) Fintech on the effect on financial
18
Financial performance of performance and financial
Micro, Small and Medium literacy strengthens the
Enterprises (MSMEs). positive influence of
financial technology
(Fintech) on financial
performance.
According to Chepngetich (2016), the study aims to evaluate the link between financial
literacy and performance of SMEs in Uasin Gishu county. This study collected primary
data through the questionnaires from sample of 290 companies and analyzed data
descriptive and inferential statistics. The author used inferential statistics, Pearson
correlation, and ANOVA to analyze the relationship between the variables. The study
found, borrowing financial literacy and budgeting financial literacy have a positive
impact on SME performance (Chepngetich, 2016).
Similar to the previous, Asakania (2016) conducted a research to study the influence
of financial literacy on performance of SMEs in Butere sub county and Kakamega
county, Kenya. The research aimed to evaluate the effect of budgeting skills, record
keeping skills, credit management skills and tax compliance skills on performance of
SMEs in Kenya. This study used a descriptive survey research design to collect data
from a sample of 390 SMEs in Butere sub county and Kakamega county, Kenya. The
data analysis method is regression equation. They have found that, cash budgets
preparation positively impacts profitability of the business, proper expense records
keeping led to greater profitability, credit facilities influence liquidity of the business,
and avoiding penalties reduces cost of doing business hence greater profitability
(Asakania, 2016).
In 2018, Mabula, and Ping researched to evaluate the effect of financial literacy and
use of technology into firm record keeping practices and risk management imitating
their consequential results on performance of SMEs in developing economies. To
examine the above purpose of their research, the partial least square structural equation
modelling was used to analyze the selected variables. The required data was collected
through a survey directed to owners/ managers of SMEs in region of Morogoro and
Dares salaam region Tanzania. 520 SMEs were selected, and the data was obtained
19
from 311 firms. Partial least square structural equation modelling was used to analyze
the data of this study. The results revealed that, impact of use of technology and firm
practices and performance have a significant relationship. Adoption of more
information technology system improve the SMEs practices and performance. There
is an indirect relationship between financial literacy and the firm practice of
bookkeeping. Moreover, the findings showed financial literacy has a significant
relationship on firm risk management practices (Mabula, 2018).
Jianmu Ye and Kulathunga (2019) analyzed the role of financial literacy in SMEs’
sustainability in Sri Lanka. They collected data from 291 Sri Lankan SMEs through a
structured questionnaire and analyzed them using AMOS.23 software, SPSS 23, and
structural model. The study found access to finance and financial risk attitude directly
affect the sustainability of SMEs, whilst access to finance and financial risk attitude
partially mediate the relationship between financial literacy and sustainability (Jianmu
Ye, 2019).
In addition to the previous study, Kulathunga et al (2020), studied the influence of

techno-finance literacy on SME performance in Sri Lanka. This study collected data
from 325 SMEs, located in central, western, and southern provinces of Sri Lanka using
structured questionnaire. Descriptive model is used to analyze the data. The study
found that, both technological literacy and financial literacy have a direct and positive
impact on ERM practices and SME performance, while ERM practices partially
mediate the relationship between financial literacy and SME performance
(Kulathunga, 2020).
In 2020, Winarsih et al conducted a research to study the role of Fintech and financial
literacy on SMEs sustainability. This study aimed to determine the mediating
relationship of financial literacy between Fintech and SMEs sustainability. This
research collected data from SMEs in Semerang, Kudus, and Surakarta of Central Java
using purposive sampling technique. Questionnaire was used to collect data and
regression analysis used to analyze the data. Based on the results, this research found
that, the fintech variable has a positive effect on financial literacy and as well as SMEs
sustainability. Also it revealed that, financial literacy has a positive connection on
SMEs sustainability. Finally, this study proved that financial literacy has a significant
relationship between fintech and business sustainability (Winarsih, 2020).
20
Yakob et al (2021), examined the influence of financial literacy on the performance of
SMEs in Malaysia. The data were collected from 364 SMEs in the states of Kedah,
Perlis, and Penang using questionnaire method. Multiple regression analysis is used to
analyze data. The research found that, financial literacy has a positive and significant
influence on the performance of SMEs after controlling for managers’ profiles and
SME-specific characteristics (Yakob, 2021).
Further, Frimpong et al (2022) examined the interconnection between financial

literacy, access to digital finance, and SME performance in Central region of Ghana
to evaluate the digital knowledge and utilization of SMEs. The data was collected
through questionnaires from 400 SMEs Cape Coast, Mankessim, Assin Fosu, Agona
Swedru, and Kasoa. SPSS was employed to measure descriptive statistics. The
findings revealed that, financial literacy has a significant connection with access to
digital finance and digital finance has a significant positive relationship on SMEs
performance. The results suggested that, introducing digital platforms supports SMEs
to achieve quicker performance (Frimpong, 2022).
According to T. Angeles (2022), the research study was aimed to determine whether
the digital financial services impact the savings, financing, and investing behavior of
micro, small, and medium-sized enterprise (MSMEs) in the Philippines. 678 MSMEs
participated in the online survey. In contrast to the previous researches mentioned
above, this study revealed that, digital financial services do not have significant impact
on the MSME’s financial behavior. This study also suggested that failure of digital
financial services to motivate saving, investing, and borrowing may affect the financial
performance of MSMEs (Angeles, 2022).
Similarly, Astari and Candraningrat (2022) conducted a research to evaluate the

influence of fintech on the financial performance of Micro, Small and Medium
Enterprises (MSMEs) in the traditional Balinese culinary sub-sector in the Sarbagita
area, using financial literacy as a control variable. The study used questionnaires to
collect data from SMEs and analyzed the data using Structural Equation model based
on Partial Least Square model. Based on the results the study found that, financial
literacy moderated fintech significantly on financial performance of MSMEs. The
results indicated that, fintech supports MSMEs to improve their performance using
financial literacy as a control variable (Candraningrat, 2022).
21
From the above 10 past research studies, four researchers analyzed the relationship
between financial literacy and sustainability of SMEs. Based on the results, they
similarly found that, there is a significant relationship between financial literacy and
sustainability of SMEs. The remaining six researchers examined the association of
digital financial literacy on sustainability of SMEs. out of that five researchers found
that, there is a significant effect of digital financial literacy on SMEs’ sustainability.
The studies suggested digital financial literacy supports sustainability and performance
of SMEs. In contrast to that, one researcher found that, digital financial services do
not have significant impact on the MSME’s financial behavior. Other than that, two
researches were conducted in Sri Lanka. In Sri Lanka, there is a direct positive impact
of financial or digital financial literacy on SMEs’ sustainability and performance.
2.5 Measurement
Table 5: Measurement of past research variables
Author Variables Measurement
Prisca Dependent
Chepngetich SME Performance: 7 questions
(2016)
Independent
Borrowing Financial 5 questions
literacy:
Budgeting Financial 4 questions

literacy:
Francis Mukatia Dependent
Asakania (2016) SME Performance: Growth in sales, Profitability, No. of
employees
Independent
Budgeting Skills: 4 questions
Record Keeping Skills: 4 questions
22
Credit Management: 4 questions
Tax Compliance: 3 questions

Juma Buhimila Dependent
Mabula, Han Firm performance:
Five point Likert scale
Dong Ping
(2018) Independent
Financial literacy:
Categorized into general financial
knowledge, financial knowledge,
financial attitudes, and financial
behavior. Financial knowledge was
captured using multiple choice
questions and the remaining questions
of financial attitudes and behavior
were stylized into a Likert scale.
Likert scale questions of 5 points.

Use of technology:

Bookkeeping:

Risk management:
Jianmu Ye, Dependent
K.M.M.C.B Sustainability: CFO’s assessment of the business’s
Kulathunga performance using the measurement
(2019) scale developed by Mikalef and
Pateli.
Access to finance: Ten items were used to measure using

the approach described by Bongomin
et al.
Financial risk attitude:
23
Assessed using six items from
Psychometric instrument developed
Independent by Weber.
Financial Literacy:
13 items from the measurement scale
developed by Bongomin et al.
K.M.M.C.B. Dependent
Kulathunga, Enterprise risk Measurement scale used by Sax and
Jianmu Ye, management practices: Torp consisted of six items.
Saurabh
Sharma, P.R. SME Performance: Measurement scale had eight items
Weerathunga developed by Degong and Ullah.
(2020) Independent
Technological Literacy: Measurement scale by Pham. Five
items were used to measure.
Financial Literacy: Measurement scale developed by

Bongomin and Munene, scale
consisted of 13 items.
Winarsih, Dependent
Mutoharoh, Financial literacy: 3 indicators: Financial knowledge,
Emisa Tahar, Financial behavior, Financial attitude.
Inayah Abdul
Aziz (2020) 3 indicators: BEP (Break Event
Business sustainability: Point), Customer satisfaction
tracking system, Employee/manager
satisfaction tracking system.
Independent 3 indicators: The use of market

Fintech: aggregator, Risk and investment
management, Understanding on
financial technology
24
Sajiah Yakob Dependent
and Roslida SME Performance: 9 questions
Zalila Ahmad
Rusli, Rubayah Independent
Yakob and Financial Literacy: 31 questions
Hafizuddin-
Syah, B.A.M.
(2021)
Stephanie Efua Dependent

Frimpong, Performance: Capital expenditure, revenue growth
Gloria and cost of production.
Agyapong and
Daniel Access to digital Extent of access to digital finance,
Agyapong finance: proximity to digital finance and
(2022) tightness of digital platform
conditions.
Independent
Financial Literacy: Measured using previously validated
instruments to include financial
skills, financial behaviour, and
financial knowledge (Houst, 2012).
The questionnaires consisted of 15
items.
25
Imelda T. Dependent
Angeles (2022) Financial behavior: 8 items Savings behavior, 9 items
borrowing behavior and 9 items
investing behavior.
Independent
Digital financial 7 items
services:
Digital literacy: 10 items
Finance literacy: 5 items
Ni Putu Rika Dependent

Puspa Astari and Financial performance: 3 indicators
Ica Rika
Candraningrat Independent
(2022) Financial technology 15 indicators
(fintech):
Chepngetich (2016) analyzed the relationship between financial literacy and

performance of SMEs in Uasin Gishu County using the SME performance as the
dependent variable of their study and is measured using 7 questions. The independent
variable is finance literacy factors such as borrowing financial literacy is measured
using 5 questions, and budgeting financial literacy is measured using 5 questions
(Chepngetich, 2016).
Asakania (2016), used 4 independent variables to evaluate the influence on dependent

variable of financial performance of SMEs. The independent variables used in the
study are budgeting skills which is measured by 4 questions, Record Keeping Skills
which is measured by 4 questions, Credit Management which is measured by 4
questions, and Tax Compliance which is measured by 3 questions (Asakania, 2016).
Mabula and Ping (2018) analyzed the use of technology and financial literacy on SME
performance. The research used 4 independent variables such as financial literacy, use
of technology, bookkeeping and risk management. The finance literacy variable
26
categorized into financial knowledge, financial attitudes and financial behavior and
they were measured using Likert scale multiple choice questions. The variables use of
technology, bookkeeping and risk management were each measured using 5 point
Likert scale multiple questions. The dependent variable firm performance was
measured using 5 point Likert scale multiple questions (Mabula, 2018).
Jianmu Ye and Kulathunga (2019), examined the role of financial literacy in SMEs’
sustainability. In addition to sustainability of SMEs, he used further two dependent
variables such as access to finance and financial risk attitude. Access to finance
measured using 10 items. Sustainability is measured using CFO’s assessment of the
business’s performance using the measurement scale developed by Mikalef and Pateli.
financial risk attitude is measured using six items from Psychometric instrument
developed by Weber. The independent variable is financial literacy and is measured
using 13 items. The SME age and size are used as control variables (Jianmu Ye, 2019).
In addition to the previous study, Kulathunga et al (2020), studied the techno finance
literacy and SMEs’ performance. So they used technological literacy in addition to
financial literacy as independent variables. Technological literacy is measured using 5
items, and financial literacy is measured using 13 items. ERM practices and SMEs
performance considered as dependent variables and are measured using 6 items and 8
items respectively (Kulathunga, 2020).
Winarsih et al (2020) analyzed the effect of fintech and financial literacy on SMEs
sustainability in 2020. The independent variable fintech was measured using 3
indicators such as the use of market aggregator, risk and investment management, and
understanding on financial technology. The dependent variables are financial literacy
and business sustainability. Three indicators such as Financial knowledge, Financial
behavior, and Financial attitude used to measure financial literacy. Business
sustainability is measured by BEP (Break Event Point), customer satisfaction tracking
system, and employee/manager satisfaction tracking system (Winarsih, 2020).
Yakob et al (2021), analyzed their study using SME performance and Financial
Literacy as their dependent and independent variables respectively. SME performance
is measured using 9 questions, and financial literacy is measured using 31 questions.
The control variables are manager profile and SME specific characters (Yakob, 2021).
27
Likewise, Frimpong et al (2022) conducted a research to study the relationship
between financial literacy, access to digital finance, and performance of SMEs. the
research used financial literacy as the independent variable and measured using
instruments include financial skills, financial behaviour, and financial knowledge. The
questionnaire consisted of 15 items to measure the independent variable. The
dependent variable was performance of SMEs, and it was measured using Capital
expenditure, revenue growth and cost of production. The mediating variable, access to
digital finance was measured through extent of access to digital finance, proximity to
digital finance and tightness of digital platform conditions (Frimpong, 2022).
According to T. Angeles (2022), the research study was aimed to evaluate the effect
of digital and financial literacy on the digital financial services and financial behavior
of MSMEs. The study used 3 independent variables such as digital financial services,
digital literacy, and finance literacy and they were measured using 7 questions, 10
questions, and 5 questions respectively. Finance behavior was used as the dependent
variable and it was measured using 8 questions of Savings behavior, 9 questions of
borrowing behavior and 9 questions of investing behavior (Angeles, 2022).
Same as to the previous, Candraningrat and Astari (2022) conducted a research on

MSMEs to evaluate how financial literacy moderate fintech on their financial
performance. The independent variable fintech was measured using 15 indicators and
the dependent variable financial performance was measured through 3 indicators.
Financial literacy was considered as the control variable and was measured by 9
indicators (Candraningrat, 2022).
2.6 Gap Analysis

Table 6: Gap analysis
Author Topic Gap
28
Prisca Chepngetich Effect of Financial Literacy 1. Sample was drawn from only
(2016) and Performance SMEs. Uasin Gishu county.
Evidence from Kenya. 2. Relationship between digital
financial literacy and
sustainability of SMEs is not
analyzed.
Francis Mukatia Influence of financial 1. Sample was selected from 2

Asakania (2016) literacy on performance of cities in Kenya.
small and medium 2. Influence of digital financial
enterprises: A case of literacy on performance of
Butere sub county SMEs not analyzed.
Kakamega county Kenya.
Juma Buhimila Mabula, Use of Technology and 1. Sample was selected only in
Han Dong Ping (2018) Financial Literacy on region of Morogoro and Dar es
SMEs Practices and salaam region Tanzania.
Performance in Developing
Economies.
Jianmu Ye, KMMCB How Does Financial 1. Sample was drawn from only
Kulathunga (2019) Literacy Promote three provinces of Sri Lanka.
Sustainability in SMEs? A 2. Study does not establish cause
Developing Country and effect relationships among
Perspective. the variables investigated.
3. Cross-sectional design, only
examined two potential
mediators of the relationship
between financial literacy and
sustainability.
4. The study uses literacy of
CFO; in future it would be better
to use the financial literacy of
the whole management team.
29
K.M.M.C.B. How Does Technological 1. Sample was drawn from
Kulathunga, Jianmu Ye, and Financial Literacy only three provinces of Sri
Saurabh Sharma, P.R. Influence SME Lanka.
Weerathunga (2020) Performance: Mediating 2. Cross-sectional design affect
Role of ERM Practices. investigating causal
relationships among the
variables.
Winarsih, Mutoharoh, The Role of Fintech and 1. Sample was drawn from only
Emisa Tahar, Inayah Financial Literacy on three regions in Central Java.
Abdul Aziz (2020) SMEs Sustainability.
Sajiah Yakob and Financial Literacy and 1. Data were collected from 3
Roslida Zalila Ahmad Financial Performance states in Malaysia.
Rusli, Rubayah Yakob of Small and Medium-sized 2. Digital Financial Literacy and
and Hafizuddin-Syah, Enterprises. Financial Performance
B.A.M. (2021) of SME is not analyzed.
Stephanie Efua Financial literacy, access to 1. A cross-sectional survey was

Frimpong, Gloria digital finance and used to gather data for the study.
Agyapong and Daniel performance of SMEs: 2. Data were collected from 3
Agyapong (2022) Evidence From Central states in Central region of
region of Ghana. Ghana.
Imelda T. Angeles The Moderating effect of 1. Researcher failed to include

(2022) Digital and Financial spending as one of the financial
Literacy on the Digital behaviors of MSMEs.
Financial Services and 2. Data were collected only from
Financial Behavior of 678 MSME owners in
MSMEs. Philippines.
30
Ni Putu Rika Puspa Financial literacy 1. Data were collected only
Astari and Ica Rika moderates the effect of from MSMEs in the Sarbagita
Candraningrat (2022) Fintech on the Financial area.
performance of Micro,
Small and Medium
Enterprises (MSMEs).
Chepngetich (2016) examined the link between Financial literacy and performance of
SMEs in Kenya. But the study collects data from one particular city in Kenya. More
research is needed to establish the effect of record keeping on SME performance and
future research should consider three factors: budget financial literacy financial
reporting and borrowing financial literacy as playing an important role in improving
SME performance. Further the study did not reveal the relationship between digital
financial literacy and SMEs performance (Chepngetich, 2016).
Asakania (2016) selected only 2 cities in Kenya to collect data to investigate the
relationship between financial literacy and SMEs performance in Kenya. Also this
study did not analyze the relationship between digital finance literacy and SMEs
performance (Asakania, 2016).
Mabula and Ping (2018) aimed to study the impact of financial literacy and use of
technology on firm performance in developing economies. But the research collected
data only in region of Morogoro and Dar es salaam region Tanzania. Further, this study
recommends more future researches on this topic by using more variables (Mabula,
2018).
Moreover, Jianmu Ye and Kulathunga (2019) studied the role of financial literacy in
SMEs sustainability in Sri Lanka. The sample was drawn from western, central, and
southern provinces only. The research is based on cross sectional design and analyzed
the relationship between financial literacy and sustainability only. Also this study
collected data from 300 CFOs, so in future it is better to collect data from financial
literacy of management team. This study does not establish cause and effect
relationships among the variables investigated, due to the cross-sectional design. Also
this study did not examine the digital finance literacy (Jianmu Ye, 2019).
31
In addition to the previous study, Kulathunga et al (2020), analyzed the influence of
techno-finance literacy on SME performance in Sri Lanka. However, there are some
limitations in this study. The sample was collected only from 3 provinces: western,
central, and southern provinces of Sri Lanka. Next, cross-sectional design prevented
from investigating causal relationships among the variables. Furthermore, this study
used single-mediator structural equation model and it recommend future researchers
to introduce multiple mediators to expand the model. Also there are not much related
researches have been done in Sri Lanka (Kulathunga, 2020).
Winarsih et al (2020) conducted a research on “the role of fintech and financial literacy
on SMEs sustainability. The data collected from only 3 regions in Central Java such
as Semarang, Kudus and Surakarta (Winarsih, 2020).
Yakob et al (2021), examined the influence of financial literacy on the performance of

SMEs in Malaysia. But the research used 3 states: of Kedah, Perlis, and Penang as the
sample. Also, the research did not study digital finance literacy and SMEs performance
(Yakob, 2021).
Further, Frimpong et al (2022) conducted a research in Central region of Ghana. The

research’s sample was drawn only from 400 SMEs in Cape Coast, Mankessim, Assin
Fosu, Agona Swedru, and Kasoa. This study used cross sectional survey to collect
data, but the longitudinal study would be more accurate measure the organization
performance. This research recommends doing more research in this area on how
financial technology literacy affects the use of digital financial platforms. Also, this
study recommends the future researchers to examine how age effects the usage of
financial technology and the frequency (Frimpong, 2022).
T. Angeles (2022) studied how the digital financial services impact the savings,
financing, and investing behavior of MSMEs and the research collected data only from
678 MSME owners from Philippines. This research failed to contain spending as one
of the financial behavior of MSMEs, so, this study provided a balanced picture of
savings and spending behavior (Angeles, 2022).
Moreover, Candraningrat and Astari (2022) also conducted a research to examine the
effect of fintech on the financial performance of MSMEs. The data was collected only
32
from SMEs in Bali, especially the Sarbagita area which contains of the Denpasar,
Badung, Gianyar and Tabanan areas (Candraningrat, 2022).
2.7 Chapter Summary

In this chapter we discussed first about the definitions of digital financial literacy,
financial literacy and sustainability. In the next section, the related theories such as
financial literacy theory and stakeholder theory were described. Section 2.4
provided the empirical evidence and discussed the findings and results. Then, the
next section explained how the variables were measured in the selected past
studies. Finally, the last section provided the gap analysis in the past researches
and recommendations for future researches.
The next chapter of this study is research methodology. It is going to discuss about
the data collection, data analysis, population and sample, conceptualization, and
hypothesis.
33
3 METHODOLOGY
3.1 Introduction
This chapter deals with the techniques and procedures used to conduct this research
study. This research is based on universal facts and existing theories. Data for this
research is collected through primary sources and analyzed by statistical methods. So
this research uses deductive approach and mono method quantitative method.
Questionnaire surveys are used to collect data from the SMEs.
This chapter is organized as follows. Section 3.2 gives an explanation about research
philosophy. This study focuses on positivism philosophy. The section 3.3 is about
research approach and the next chapter provides the methodological choice used in
this research. Section 3.5 is about research strategy and the next chapter is about time
horizon. Section 3.7 talks about data collection methods. Population and samples and
conceptual framework included in the section 3.8 and 3.9 respectively.
Operationalization of variables is under the section 3.10. Hypothesis are set out in the
section 3.11. Section 3.12 describes data analysis, and the last section is chapter
summary.
3.2 Research Philosophy

Research philosophy is a system based on beliefs about development of knowledge. It
consists of positivism, critical realism, interpretivism, pragmatism and
postmodernism.
“Positivism is related to the philosophical stance of natural scientist and entails
working with an observable social reality to produce law-like generalizations” (Mark
N.K. Saunders, 2019). This approach relies on scientific methodology which is based
on universal truth. This approach follows factual knowledge gained by quantifiable
observations which is measured using statistical analysis.
“Critical realism focuses on explaining what we see and experience, in terms of the
underlying structures of reality that shape the observable events” (Mark N.K.
Saunders, 2019). This philosophy relies on reality as the most important external
factor, but not directly accessible through our observations.
“Interpretivism emphasizes that humans are different from physical phenomena
because they create meanings” (Mark N.K. Saunders, 2019). This philosophy is fully
based on assumptions. This analyses the actions through norms, beliefs and values
34
because interpretivism believes that reality is determined by perspectives of
individuals and beliefs of the cultures rather than natural laws.
Pragmatism starts with a problem, which aims to provide practical solutions to the
problem and rejects unpractical ideas. Postmodernism gives importance to subjective,
and multiple views of individuals. It rejects the objectivity, rationality and scientific
truth.
This research uses philosophy of positivism. This research uses prevailing theories to
develop hypothesis, uses quantitative method, and statistical analysis. This study
analyses the impact of digital financial literacy on SMEs in Sri Lanka using scientific
methods (Mark N.K. Saunders, 2019).
3.3 Research Approach

Research approach is a plan that includes the detailed methods of data collection,
analysis, and interpretations. It consists of deductive, inductive, and abductive
approaches.
In Deductive approach, the research conclusion being true in all the situations, because
it is obtained logically from the existing theories.
On the other hand, inductive approach occurs, when there is a gap in the logical
argument between the observations and conclusion. This approach aims to develop a
theory. It starts with data collection and finds patterns to develop new theories or
hypothesis.
Abductive research commences with surprising facts or puzzles, or incomplete set of
observations and the researcher pursues to give best explanation to the surprising fact.
This research focuses on deductive approach. Deductive approach develops
hypothesis based on existing theory, and then collects and analyses data to test those
hypotheses to analyze the results.
3.4 Methodological Choice

Research design is a general plan of finding proper methods to answer the research
questions. Generally, there are three methods available to how to design the research.
They are quantitative, qualitative, and mixed method.
Quantitative method mainly connected with philosophy of positivism. Because, in this
method, predetermined and highly structured data collection methods are used.
35
Quantitative designing method is linked with deductive approach. This method
collects and evaluate data to develop hypothesis and test theory. Quantitative method
normally uses numerical data, and it analyzes relationship between variables using
statistical techniques.
Qualitative method usually interconnected with philosophy of interpretivism. Because
researchers rely on the perceptions of the individuals and socially constructed
meanings. Qualitative method often uses inductive approach since the researchers
focus on developing the theory. This method studies the participants’ opinions and
analyses the relationship between them.
Mixed method approach is the combination of quantitative and qualitative methods. It
uses deductive, inductive or abductive approach to develop theory.
This research focuses on quantitative method. There are two techniques in quantitative
methodology. If a quantitative research design uses a single data collection technique
using questionnaire, it is known as mono method quantitative study. If quantitative
research uses more than one data collection technique, it is called as multi-method
quantitative study (Mark N.K. Saunders, 2019).
This study uses mono method quantitative study using single data collection
technique through issuing questionnaires, and quantitative analysis procedure. This
study measures the relationship between variables, collects and analyses data through
quantitative method.
3.5 Research Strategy

Research strategy is a plan how the researcher is going to answer the research
questions. It contains of experiment, survey, grounded theory, archival and
documentary research, case study, narrative theory, ethnography, and action research.
Experiment is based on natural sciences. Survey strategy is vital in business and
management researches which analyzes data using statistical analysis. Survey strategy
mainly uses questionnaires. Archival and documentary research is another method,
which allows the researchers to access data from sources such as online from around
the world. Case study is the deep inquiry about the topic. Ethnography is used to study
the culture of the specific group of people. Narrative inquiry is a story which interprets
an event (Mark N.K. Saunders, 2019).
36
This research study uses survey strategy. Survey strategy is more connected with
deductive approach and questionnaires are mainly used to collect data. It allows to
collect data, that can be analyzed quantitatively using statistical techniques. This study
collects data using questionnaires and analyses data using statistical method. So,
survey strategy is more suitable to conduct this research.
3.6 Time Horizon

There are two methods when considering about time horizon. They are cross-sectional
studies and longitudinal studies. Cross sectional studies normally describe the
incidence of a specific phenomenon. Cross sectional studies normally employ survey
strategy. They describe the particular incidence or explain the relationship between
variables.
Longitudinal studies mainly focus on change and development. The researchers
continually examine the variables to identify the changes over an extended period of
time.
This study collects data in one particular time period. So, this research uses cross
sectional strategy.
3.7 Data Collection

Data can be collected from primary or secondary sources. Primary data refers to the
data, which is obtained by the researcher himself/ herself. Surveys, interviews, field
observation, experiments are some methods of collecting primary data to solve the
research problem.
Secondary data is the research data which has been previously collected by someone
else and can be accessed by researchers to give a solution to the research problem.
Referring public records, government publications, journals are some techniques of
collecting secondary data.
This research gathers data from primary sources using questionnaire survey method.
The questionnaire surveys are issued to small and medium businesses in Colombo
district to collect data to analyze the relationship between digital financial literacy and
sustainability of the firm.
37
3.8 Population and Sample
This research study collects data from Colombo district to analyze the impact of digital
financial literacy on SMEs in Sri Lanka. According to Census Department, many
SMEs operate in Colombo district so, this research uses Colombo district as the
population. As at 27th of July 2022, there are 135,217 SMEs in Colombo district and
135,217 SMEs are the population of this research.
According to the Morgan table, 382 SMEs in Colombo district are selected as sample
size of this study. However, many SMEs do not have websites, email and proper
internet facilities, so obtaining the list of SMEs located in Colombo district is
complicated. So, this research uses convenient sampling method. The questionnaire
surveys are issued to the small and medium scale businesses in the near locations in
Colombo district, because it is the easiest way to collect data. The researcher visited
the SMEs in the near locations and collected data 195 SMEs in the Colombo district.
3.9 Conceptual Framework
Moderating Variables
▪ Firm Size
Independent Variables
Digital Financial Literacy Dependent Variables
▪ Basic knowledge Corporate Sustainability
and skills ▪ Economic
▪ Awareness Sustainability
▪ Practical know ▪ Social
how Sustainability
▪ Decision making ▪ Environmental
▪ Self-protection Sustainability
Figure 1: Conceptualization of variables
38
3.10 Operationalization of Variables
Table 7: Operationalization of variables
Variable Abbrev Sub Variable Abbrev Measurement Source

Digital iation
DFL Basic knowledge iation
BK 6 Questions (Angela
Financial and skills C.
Literacy Lyons,
2021)
Awareness AW 6 Questions
Practical know- PK 4 Questions

how
Decision-making DM 7 Questions
Self-protection SP 2 Questions
Corporate CS Economic EC 16 Questions (Hélène

Sustainabili Sustainability Laurell,
ty 2018)
Social SS 13 Questions
Sustainability
Environmental EN 14 Questions
Sustainability
Firm Size FS Number of

Employees
Definition of variables
Basic Knowledge and Skills: Knowledge in basic financial concepts and digital skills
(numeracy, interest, inflation, and knowledge of digital financial devices)
Awareness: Consciousness of available of financial products, services and digital

applications.
Practical Know-how: Practical knowledge in how to use financial services, products

and digital applications.
Decision Making: Ability to make effective financial decisions and digital decisions.
39
Self-Protection: Ability to avoid fake financial information and protect themselves
from inappropriate digital information.
Economic Sustainability: Practicing the effective use of natural and financial

resources to maintain long term stability.
Social Sustainability: Managing impacts of people, processes, activities and

organization to maintain long term stability.
Environmental Sustainability: Maintaining natural environment balance to support

the current and future wellbeing towards the long term stability.
3.11 Hypothesis
This study aims to analyze the relationship between Digital Financial Literacy and
Corporate Sustainability. Based on the literature, the following hypothesis are
formulated for testing the validity of the test.
H1: There is a strong association between Digital Financial Literacy and

Corporate sustainability.
H1(a): There is a strong association between Digital Financial Literacy and

Economic sustainability.
H1(b): There is a strong association between Digital Financial Literacy and Social
sustainability.
H1(c): There is a strong association between Digital Financial Literacy and

Environmental sustainability.
3.12 Data Analysis

This research collects data through 5 point Likert scale questionnaire ranking from 1
(Strongly Disagree) to 5 (Strongly Agree). This study analyses data using structural
equation model. It is a set of statistical methods used in scientific researches to measure
and analyze structural relationship. SPSS statistical software is used to analyze
demographic, frequency, descriptive, and correlation analysis. Smart PLS (Partial
Least Square) regression model is used to analyze the measurement model and
structural model to test hypothesis. According to this research, there are 3 dependent
40
variables and a moderate variable. Therefore, Smart PLS is a suitable software to
analyze the association between independent variable and three dependence variable
and also run moderator analysis.
Measurement Model
Measurement model refers how the latent variables are measured. The research uses
quantitative method, so reliability and validity are important factors. Reliability is
checked by analyzing the consistency of the measure, and validity is checked by
analyzing accuracy of the measure. Hypothesis tests involved in structural model will
be reliable and valid only through measurement model because it explains how these
constructs are measured (Joseph F Hair, 2017).
Structural Model
Structural model displays how the latent variables are linked to each other. R2 method
is a common measure to evaluate structural model. It is calculated as the squared
correlation between actual and predicted values of the construct and the value ranges
from 0-1.
Hypothesized relationships are measured using path coefficient significance. The
values are between approximately -1 and +1. The path coefficient values near to +1
signify strong positive relationship and statistically significant. If the coefficient values
are closer to 0, it means weaker relationship and very low values closer to 0 represent,
not statistically significant (Joseph F Hair, 2017).
3.13 Chapter Summary

This chapter dealt with research philosophy, research strategy, research design,
research approach, data collection, data analysis, time horizon, population and sample
operationalization, and hypothesis.
The next chapter will be findings and discussion. It discusses about the results of the
findings and the relationship with the variables.
41
4 DATA PRESENTATION AND ANALYSIS
4.1 Introduction
This chapter presents the analysis of data and interpretation on the impact of digital
financial literacy on sustainability of SMEs. SPSS statistical software and smart PLC
were used to analyze the data. Tables, graphs and charts are used to easily interpret the
results. There are 2 models constructed to analyze data. the 1st model examines the
association between each constructs. On the other hand, model 2 analyzes the overall
association between main variables. The chapter includes 10 subsections. The next
section 4.2 discusses about the demographic information used for this research such as
age of the owner, gender, and educational qualification. This section briefly provides
the frequency of demography information. The sub section 4.3 deals with business
profile. It presents frequency analysis of sector of SMEs and number of years in the
industry. Section 4.4 presents the frequency of variables. Section 4.5 is about
descriptive analysis and chapter 4.6 is about correlation analysis.
Section 4.7 interprets the analysis of model 1, the association between constructs.
Section 4.8 analyses the association between main variables, digital financial literacy
and corporate sustainability. Section 4.9 provides the analysis of the association
between digital financial literacy with economic, social and environmental
sustainability. These 3 models assess the measurement model and structural model.
Measurement model includes construct reliability and validity, convergent validity,
and discriminant validity. Structural model contains R squared analysis, hypothesis
testing and effect size (f2) analysis. The last section 4.10 deals with moderator analysis.
The last chapters 4.11 and 4.12 discusses about key findings and discussion of the
results of analysis.
4.2 Demographic Profile

This section analyses the demographic factors of this research. This research uses age
of the owner, gender, and educational qualifications of the owner as demographic
factors. According to this research topic, Most of the SMEs are owner based entities.
Owners are one of the factors who impact the SMEs’ sustainability. So this research
analyzes details of the owners to identify the impact on sustainability of small and
medium scale enterprises.
42
4.2.1 Age of the Owner
The research analyzed the age of the SME owners using 6 categories. They are Below
25, 25 to 34, 35 to 44, 45 to 54, 55 to 64, and above 65.
Table 8: Frequency of Age of the owner
Age group Frequency Percent

25 -34 26 13.3
35 - 44 54 27.7
45 - 54 58 29.7
55 - 64 38 19.5
Above 65 15 7.7
Below 25 4 2.1
Total 195 100.0
(Source: SPSS)
According to the table 1, all age groups are participated to the survey. From the results
of the above table, highest responses are recorded from the age group 45-54.
Approximately, 30% of owners are participated in the survey. Next, 54 responses
recorded by the age group of 35-44 which is very close to the age group of 45-54. The
respondent rate is nearly 28%.
The table depicts that, the age between 35-64 of SME owners actively participated to
the survey. 2% of responses recorded by the young owners of SMEs who belongs to
below 25 group. Only 4 respondents participated in the survey and ranked last.
4.2.2 Gender
The gender details collected from the questionnaire. Out of the 195 respondents, the
majority are males. Approximately 79% responses are received from them.
Female
40 Male
155
Figure 2: Gender - Frequency
43
40 female SME owners participated in this survey, and they contributed nearly 21%.
Out of the 195 respondents, the male SME owners’ participation is higher than female
owners’ participation.
4.2.3 Educational Qualification

This research analyzes the impact of digital financial literacy on sustainability of
SMEs. So, the research collected SME Owners’ educational qualifications to further
analysis. The below table shows the frequency of educational qualification data
received from the 195 respondents.
Table 9: Frequency of educational qualifications
Category Frequency Percent

A/L Passed 67 34.4
Below O/L 44 22.6
Degree 21 10.8
Other 3 1.5
Master’s degree 6 3.1
O/L Passed 47 24.1
Professional Qualifications 7 3.6
Total 195 100
(Source: SPSS)
The majority of the respondents are A/L passed. 67 responses are received from SME
owners who passed Advanced level. The SME owners who passed Ordinary level took
the second rank with nearly 24%. Further, 21 responses received from below O/L
qualified SME owners. Their participation rate is 23%. More than that, 21 responses
are received from bachelor’s degree holders, and 6 are from master’s degree holders.
There is nearly 4% responses rate from professionally qualifies SME owners. Finally,
out of 195 participants, the least number of responses are received from diploma
holder, and their participation rate is nearly 2%.
4.2.4 Summary of Demographic Information

The research collected details about age of the owner, gender and educational
qualifications of the owner as demographic information. The following table provides
the entire summary of demographic profile.
44
Table 10: Summary of demographic variable frequency
Variables Category Frequency Percentage Rank
Age 25 -34 26 13.33 4
35 - 44 54 27.69 2
45 - 54 58 29.74 1
55 - 64 38 19.49 3
Above 65 15 7.69 5
Below 25 4 2.05 6
Gender Female 40 20.51 2
Male 155 79.49 1
Educational A/L Passed 67 34.4 1
Qualification Below O/L 44 22.6 3
Degree 21 10.8 4
Other 3 1.5 7
Master’s degree 6 3.1 6
O/L Passed 47 24.1 2
Professional Qualifications 7 3.6 5
(Source: SPSS)
4.3 Business Profile

The business profile includes the sector of SMEs, and number of years in the industry.
The analysis of business profile helps to identify the stability of SMEs in their
particular industry.
4.3.1 The Sector of SMEs

To get the sector wise data of SMEs, the questionnaire contained 5 categories. They
are Agriculture, Wholesale and Retailing, Apparel, manufacturing, and other. Out of
the 195 responses, most of the responses are received from wholesale and retailing
sector SMEs because most of the SMEs in Colombo district are belong to wholesale
and retailing industry.
Wholesale and retailing 86
Other 78
Manufacturing 8
Apparel 23
0 20 40 60 80 100
Figure 3: Frequency chart of sector of SMEs
45
According to the table, high level of SMEs belongs to wholesale and retailing sector
with 44%. 86 wholesale and retailing SMEs participated to the survey study. Next, the
SMEs from “other” sector responded 40%. 23 SMEs participated in the survey which
belong to apparel sector, and 8 SMEs responded to the survey from manufacturing
sector. However, there is not any responses received from agricultural sector.
There are 78 SMEs participated in the questionnaire survey which belong to “other”
sector including Hotel, Education, Services, NGO and Etc. 40% of responses received
from those sector SMEs. 15% of SMEs related to hotel business participated in the
survey and that is the highest in the “other” sector with 30 participants. 11 service
sector SMEs responded to the survey. 6 education sector SMEs participated to the
survey with 3%. Other than that, 3 not for profit organizations (NGOs) which are
subject to SME standards participated in the survey with 1.5%. The rest responses are
received from the sectors of pharmacy, bakery, salon, health and fitness, consultancy,
investment, studio, imports and exports and so on. The table below depicts the entire
details.
Table 11: Table of sector of SMEs

Auto mobile 5.0 2.6
Bakery 1.0 0.5
Beauty salon 1.0 0.5
Book Shop 1.0 0.5
Computer Repair 1.0 0.5
Consultancy 1.0 0.5
Decorations 1.0 0.5
Education 6.0 3.1
Event planner 1.0 0.5
Fashion Jewelry making 1.0 0.5
Handicraft (Online) 1.0 0.5
Hardware 2.0 1.0
Health & Fitness 1.0 0.5
Hotel 30.0 15.4
Import and Export 1.0 0.5
Interior designers 1.0 0.5
Investment 1.0 0.5
NGO 3.0 1.5
Pharmacy 1.0 0.5
Salon 3.0 1.5
Services 11.0 5.6
Shoes Shop 1.0 0.5
46
Studio 3.0 1.5
Total 78 40.0
(Source: SPSS)
4.3.2 Number of Years in the Industry

In the questionnaire, it was asked from the SMEs to provide the number of years in the
industry to get the details about business profile as well as to analyze the sustainability.
The questionnaire consisted of 5 categories such as Below 1 year, 1 to 2 years, 3 to 5

years, 6 to 8 years, 9 to 10 years and more than 10 years. Most of the responses received
from the category “more than 10 years”.
Table 12: Table of frequency data of no of years in the industry

1 - 2 Years 6 3.1
3 - 5 years 24 12.3
6 - 8 years 37 19.0
9 - 10 years 26 13.3
Less than 1 year 1 0.5
More than 10 years 101 51.8
Total 195 100
(Source: SPSS)
101 responses received from the SMEs which are in the industry for more than 10
years. The participant’s rate is 58%. Next, the SMEs from the group 6-8 years
participated to the survey with 37 responses. There are 26 and 24 participants from 9-
10 years’ group and 3-5 years’ group respectively. 6 SMEs responded to the survey
from the group 1-2 years. Only 1 response received from less than 1-year category.
4.3.3 Summary of Business Profile

The business profile consists of SMEs’ sector and number of years in the industry. The
following table presents the entire data of business profile frequency.
Table 13: Summary data of business profile
47
Item Frequency Percentage `Rank
Apparel 23 11.3 3
Manufacturing 8 4.1 4
Other 78 40.5 2
Wholesale and retailing 86 44.1 1
Agriculture 0 0.0 5
1 - 2 Years 6 3.1 5
3 - 5 years 24 12.3 4
6 - 8 years 37 19.0 2
9 - 10 years 26 13.3 3
Less than 1 Year 1 0.5 6
More than 10 years 101 51.8 1
(Source: SPSS)
4.4 Frequency Analysis of Variables

4.4.1 Digital Financial Literacy (DFL)
Digital financial literacy is the independent variable of this research. It is measured
using 5 sub variables such as Basic knowledge and skills (BK), Awareness (AW),
Practical Know-how (PK), Decision Making (DM), and Self-Protection (SP). Totally,
25 questions used to measure the entire independent variable.
Basic Knowledge and Skills (BK)

The sub variable Basic Knowledge and Skills measured using 6 questions. The table
below shows the frequency of responses received for each 6 questions.
The question BK1 received more agrees and strongly agrees than other 5 questions.
There is not any strongly disagrees to this questions and only consists of 3 disagrees.
Question BK2 received a greater number of disagrees and strongly disagrees than other
questions and it received 82 agrees which is the least among all questions. More than
40 respondents have chosen “neutral” to the questions BK2, BK3, and BK4.
48
Strongly Disagree Disagree Neutral Agree Strongly Agree
160
140
140
115 116 118 117
120
100 82
80
60 50 51
44 40
33 37 36
40 25
19 15 20 14 15 18 17
20 11 13 12
03 3 2 1 3
0
BK1 BK2 BK3 BK4 BK5 BK6
Figure 4: Basic Knowledge and skills – frequency data
Awareness (AW)
This sub variable includes 6 questions. Each questions received mixed responses and
they are shown below in the table 7.
Table 14: Frequency data of awareness

AW1 AW2 AW3 AW4 AW5 AW6
Strongly Disagree 1 1 1 1 1 1
Disagree 17 12 17 18 11 13
Neutral 47 39 57 49 40 49
Agree 120 132 115 117 125 121
Strongly Agree 10 11 5 10 18 11
Total 195 195 195 195 195 195
(Source: SPSS)
Each 6 questions have higher number of agrees. The highest agrees received to the
question AW2 amongst all questions. Each 6 questions received one disagree. More
number of “neutral” responses received to the question AW3.
Practical Know-How (PK)

The questionnaire contains 4 questions to test this variable. Total 195 respondents to
all 4 questions of this variable. The below model presents the responses.
Table 15: Frequency data of practical know how

PK1 PK2 PK3 PK4
Strongly Disagree 2 2 3 3
Disagree 16 14 13 13
49
Neutral 27 33 24 32
Agree 125 131 139 134
Strongly Agree 25 15 16 13
Total 195 195 195 195
(Source: SPSS)
To this variable more responses recorded as “agree” for all four questions. The highest
participants responded “agree” to the question PK3 among other questions. The higher
number of strongly agree responses received from 25 respondents to the question PK1.
The questions PK3 and PK4 received least number of disagrees and strongly disagrees.
Decision Making (DM)

Table 16: Frequency data of decision making
DM1 DM2 DM3 DM4 DM5 DM6 DM7

Strongly Disagree 0 0 0 0 1 0 0
Disagree 2 2 3 9 2 1 3
Neutral 13 25 23 39 40 35 44
Agree 146 147 136 133 142 147 139
Strongly Agree 34 21 33 14 10 12 9
Total 195 195 195 195 195 195 195
(Source: SPSS)
The Sub variable decision making consist of 7 questions. There is no nay “strongly
disagree” responses to the questions DM1, DM2, DM3, DM4, DM6, and DM7. Many
agree responses are received to each 7 questions. Questions DM2, and DM6 received
same highest agree responses from 147 participants. Also, many strongly agree
responses received to this variable.
Self-Protection (SP)
Self-Protection is measured by using 2 questions. Many participants selected agree and
neutral as responses for questions SP1 and SP2. There are no any participants
responded “strongly disagree” to question SP2. The following bar chart shows the
frequency of responses of Self-Protection.
50
140 131 128
120
100
80
60 46 45
40
14 11 8
20 1 0 6
0
Strongly Disagree Neutral Agree Strongly
Disagree Agree
SP1 SP2
Figure 5: Self-protection frequency of data
4.4.2 Sustainability
Sustainability of SMEs is the dependent variable of this research. It includes Economic
sustainability (EC), Social Sustainability (SS), and Environmental Sustainability (EN).
This variable is measured by 43 questions.
Economic Sustainability (EC)

The questionnaire includes 16 questions to measure economic sustainability.
Table 17: Economic sustainability frequency of data
EC1 EC2 EC3 EC4 EC5 EC6 EC7 EC8

Strongly Disagree 1 0 0 0 0 0 0 0
Disagree 2 1 2 0 2 0 0 5
Neutral 13 25 18 18 23 28 32 45
Agree 111 128 131 146 139 152 148 129
Strongly Agree 68 41 44 31 31 15 15 16
Total 195 195 195 195 195 195 195 195
(Source: SPSS)
EC9 EC10 EC11 EC12 EC13 EC14 EC15 EC16
Strongly Disagree 0 0 0 0 0 0 0 0
Disagree 3 0 1 1 5 6 0 2
Neutral 41 40 35 41 49 48 42 42
Agree 132 143 146 144 131 133 144 138
Strongly Agree 19 12 13 9 10 8 9 13
Total 195 195 195 195 195 195 195 195
According to the table 17, there is not any strongly disagree responses received for all
questions excluding question EC1. Many responses are “agree” and question EC6 has
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highest agrees compared to others. Disagree rate also low for all questions. The most
strongly agrees are received to question EC1.
Social sustainability (SS)

The questionnaire included 13 questions to measure social sustainability.
Table 18: Social sustainability frequency of data
SS1 SS2 SS3 SS4 SS5 SS6 SS7

Disagree 8 13 11 6 3 8 4
Neutral 42 47 45 44 44 51 39
Agree 131 128 133 128 142 129 140
Strongly Agree 14 7 6 17 6 7 12
Total 195 195 195 195 195 195 195
SS8 SS9 SS10 SS11 SS12 SS13

Strongly Disagree 0 0 0 0 0 0
Disagree 7 5 5 3 2 3
Neutral 66 48 49 51 58 56
Agree 116 135 131 132 128 130
Strongly Agree 6 7 10 9 7 6
Total 195 195 195 195 195 195
(Source: SPSS)
The social sustainability frequency of responses shows a greater number of “agree” to

each questions. The highest number of “agree” responses are received to question SS5.
There is no any “strongly disagree” responses to all questions. The table shows, very
few participants responded to the option “strongly agree” and “disagree” as well.
Environmental Sustainability (EN)
Table 19: Environmental sustainability frequency of data

EN1 EN2 EN3 EN4 EN5 EN6 EN7
Disagree 13 9 13 14 9 10 9
Neutral 62 54 50 60 62 54 49
Agree 115 123 126 113 116 122 126
Total 195 195 195 195 195 195 195
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EN8 EN9 EN10 EN11 EN12 EN13 EN14
Disagree 15 10 12 12 11 13 8
Neutral 50 41 65 63 57 60 73
Agree 120 130 111 112 119 111 110
Total 195 195 195 195 195 195 195
(Source: SPSS)
The questionnaire included 19 questions to measure environmental sustainability. The

above table shows that, most of participants responded “agree” for all questions. This
indicated most of the SMEs maintain environmental sustainability. There is only one
participant responded “strongly disagree” for question EN11. Other than that no
responses related to “strongly disagree”.
4.5 Descriptive Analysis

The descriptive statistics calculated on the variables are provided in the below table.
Table 20: Descriptive statistics of variables
N Minimum Maximum Mean Std. Deviation
BK 195 1.50 5.00 3.6769 .63468
AW 195 1.00 5.00 3.6496 .59757
PK 195 1.00 5.00 3.7577 .68343
DM 195 2.86 5.00 3.9026 .37381
SP 195 1.50 5.00 3.7051 .58236
EC 195 3.06 5.00 3.9201 .35465
SS 195 2.00 5.00 3.7310 .44371
EN 195 2.00 5.00 3.6330 .52547
(Source: SPSS)
According to the table 20, Economic Sustainability (EC) of SMEs is high among all
the variables, because the mean value is 3.9201 (SD = 0.35465). The results reveal
that, overall mean values of all variables are greater than 3.5 and closer to 4.0 (agree).
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This shows a positive perception of digital financial literacy and corporate
sustainability amongst the SMEs.
4.6 Correlation Analysis

Table 21: Correlation Matrix
BK AW PK DM SP EC SS EN
BK 1
**
AW .783 1
PK .745** .763 **
1
DM .578** .531** .528 **
1
SP .539** .635** .616** .353 **
1
EC .358** .285** .267** .546** .344 **
1
SS .514** .564** .438** .424** .434** .455 **
1
EN .599** .694** .571** .375** .572** .356** .755 **
1
Note: Correlation is significant at the 0.01 level (1-tailed) (SPSS)
A person Correlation matrix was calculated to examine the relationships between the
variables. There is a very strong, positive correlation between Basic Knowledge –
Awareness, Basic Knowledge – Practical know how, Awareness – Practical know
how, and Social sustainability – Environmental sustainability. Because the correlation
coefficient of 0.7 to 1 is considered as very strong. Further, there are positive, weak
relationships between the variables Awareness – Economic sustainability, and
Practical know – Economic Sustainability. Because the correlation values are between
0.1 to 0.3, so it is considered as weak. In addition to that, the variables which have
correlation coefficient of 0.3 to 0.5 are considered moderate, and correlation values
between 0.5 to 0.7 considered strong. According to the table, there is not any very
week correlation between variables since their values are not equal or below than 0.1.
4.7 Model 1 – Association between all sub variables

Model 1 was built to test the correlation between the sub variables.
4.7.1 Assessment of Measurement Model/ Outer Model

The association between the Digital Financial Literacy and Sustainability of SMEs and
the indicators were tested using Partial Least Square (PLS) method. Convergent
validity and discriminant validity are assessed in the measurement model. The
54
measurement model is examined to confirm the questionnaire survey determines the
variables that were supposed to measure is reliable.
4.7.2 Construct Validity and Reliability

Model 1 examines the reliability between each variable. The construct validity and
reliability can be evaluated by analyzing the factor loadings, and the loadings of higher
than 0.50 on two or more factors is considered significant (Hair et al. 2011).
4.7.3 Convergent Validity

Convergent validity tests whether the constructs are correlated. Factor loadings, CR
and AVE are used to evaluate convergent validity. To increase the value of CR, some
items were deleted. They are; 1 indicator from Basic Knowledge and skills (BK1), 3
indicators from Decision Making (DM1, DM4, DM5), and 8 indicators from
Economic Sustainability (EC1, EC2, EC3, EC4, EC5, EC6, EC7, EC8). After deleting
those indicators, the model 1 has a convergent validity.
Table 22: Convergent validity Model 1
Item
Construct Item Loadings Alpha CR AVE
deleted
Basic BK2 BK1 0.801 0.887 0.917 0.689
Knowledge BK3 0.821
and Skills BK4 0.844
(BK) BK5 0.854
BK6 0.831
Awareness AW1 0.844 0.911 0.931 0.694
(AW) AW2 0.866
AW3 0.830
AW4 0.710
AW5 0.878
AW6 0.858
Practical PK1 0.893 0.918 0.942 0.802
Know how PK2 0.909
(PK) PK3 0.891
PK4 0.887
55
Decision DM2 DM1 0.654 0.717 0.820 0.534
Making (DM) DM3 DM4 0.682
DM6 DM5 0.784
DM7 0.792
Self-Protection SP1 0.882 0.751 0.889 0.800
(SP)
SP2 0.907
Economic EC9 EC1 0.770 0.899 0.919 0.587
Sustainability EC10 EC2 0.762
(EC) EC11 EC3 0.700
EC12 EC4 0.776
EC13 EC5 0.806
EC14 EC6 0.803
EC15 EC7 0.742
EC16 EC8 0.765
Social SS1 0.716 0.937 0.945 0.569
Sustainability SS2 0.783
(SS) SS3 0.804
SS4 0.710
SS5 0.781
SS6 0.705
SS7 0.732
SS8 0.746
SS9 0.793
SS10 0.710
SS11 0.776
SS12 0.766
SS13 0.778
Environmental EN1 0.762 0.956 0.961 0.638
Sustainability EN2 0.839
(EN) EN3 0.708
EN4 0.826
EN5 0.733
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EN6 0.819
EN7 0.797
EN8 0.774
EN9 0.779
EN10 0.858
EN11 0.845
EN12 0.831
EN13 0.804
EN14 0.794
(Source: Smart PLS)
As shown in table 22, all the variables except DM2 and DM3 are greater than 0.7 (Hair
et al. 2011). The indicators DM2, and DM3 are closer to 0.7. CR is calculated from
the factor loadings of the variables. From the table, all the AVE values are above 0.5.
So, these values are considered reliable. Also, the Cronbach alpha values are greater
than 0.7, so the reliability is high.
4.7.4 Discriminant Validity

The discriminant validity can be analyzed by comparing the square root of the AVE
with the correlations between the variables. The AVE for each variable should be
higher than the squares of the correlation between the variables. The model will be
considered to have a good discriminant validity, when the correlation among the
variables is lower than the square root of the AVE (Fornell & Larcker).
According to table 23, all of the square root of AVE (the bold values) are higher than
the correlation between the variables. So, the model 1 have adequate discriminant
validity.
Table 23: Discriminant Validity (Fornell & Larcker) model 1
AW BK DM EC EN PK SP SS
AW 0.833
BK 0.799 0.830
DM 0.597 0.632 0.731
EC 0.361 0.374 0.521 0.766
EN 0.703 0.613 0.452 0.436 0.799
PK 0.767 0.763 0.597 0.306 0.573 0.895
SP 0.639 0.559 0.444 0.400 0.576 0.618 0.894
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SS 0.596 0.542 0.473 0.520 0.771 0.461 0.448 0.755
(Source: Smart PLS)
Figure 6: Measurement Model 1
4.7.5 Assessment of Structural Model/ Inner Model

Structural model analyzes the hypothesized association between the variables. Initially
the t-statistics are obtained from the bootstrapping method. The significance testing is
achieved by running 5000 bootstrapped samples from the original 195 cases.
R2 values for dependent variables are assessed to find the amount of variance in each
variable. R square provides information on the goodness of fit of the model.
Table 24: Coefficient of Determination (R2) model 1
R-square R-square adjusted

EC 0.322 0.304
EN 0.527 0.514
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SS 0.392 0.376
(Source: Smart PLS)
According to the table 24, the R2 value for Economic sustainability (EC) is 0.322,
which implies 32.2% of Economic sustainability (EC) is predicted by Digital financial
literacy (DFL). Also, 52.7% of Environmental sustainability (EN) and 39.2% of Social
sustainability (SS) is explained by Digital financial literacy (DFL).
4.7.6 Hypothesis Testing

Table 25 provides the path coefficients and their significance values.
Table 25: Hypothesis Testing model 1

Hypothesis Relationship M STDEV t value P values Decisions
H1 AW -> EC -0.001 0.168 0.037 0.970 Not Supported
H2 AW -> EN 0.493 0.100 4.921 0.000 Supported
H3 AW -> SS 0.413 0.119 3.437 0.001 Supported
H4 BK -> EC 0.083 0.116 0.714 0.475 Not Supported
H5 BK -> EN 0.123 0.094 1.311 0.190 Not Supported
H6 BK -> SS 0.151 0.110 1.396 0.163 Not Supported
H7 DM -> EC 0.476 0.086 5.501 0.000 Supported
H8 DM -> EN 0.005 0.067 0.100 0.920 Not Supported
H9 DM -> SS 0.164 0.088 1.872 0.061 Not Supported
H10 PK -> EC -0.211 0.140 1.450 0.147 Not Supported
H11 PK -> EN -0.028 0.120 0.254 0.800 Not Supported
H12 PK -> SS -0.128 0.121 1.144 0.253 Not Supported
H13 SP -> EC 0.274 0.102 2.693 0.007 Supported
H14 SP -> EN 0.206 0.088 2.391 0.017 Supported
H15 SP -> SS 0.107 0.096 1.185 0.236 Not Supported
(Source: Smart PLS)
The predictors of awareness and self-protection were found to have a positively

significant association with environmental sustainability. However, basic knowledge
& skills, decision making, practical know how were found to have no association with
environmental sustainability. The predictors of decision making, and self-protection
were found to have a positively significant relationship with economic sustainability.
On the other hand, awareness, basic knowledge & skills, practical know how were
found to have no significant relationship with economic sustainability. Also,
awareness was found to have a positively significant relationship with social
sustainability. But the other 4 variables such as basic knowledge & skills, practical
59
know how, decision making, and self-protection were found to have no significant
association with social sustainability.
4.7.7 Effects Size (f2)

The change in the R2 value when a specified independent variable is omitted from the
model can be used to estimate whether the omitted variable has a substantive effect on
the dependent variables. This measure is called as the ƒ2 effect size. ƒ2 values of 0.02,
0.15, and 0.35 indicates small, medium, large effects respectively. Effect size value
lower than 0.02 represent that there is not any effect.
Table 26: Effect size f2 model 1
Constructs f-square Effect

AW -> EC 0.000 None
AW -> EN 0.140 Small
AW -> SS 0.076 Small
BK -> EC 0.003 None
BK -> EN 0.009 None
BK -> SS 0.011 None
DM -> EC 0.185 Medium
DM -> EN 0.000 None
DM -> SS 0.025 Small
PK -> EC 0.020 None
PK -> EN 0.001 None
PK -> SS 0.010 None
SP -> EC 0.061 Small
SP -> EN 0.051 Small
SP -> SS 0.012 None
(Source: Smart PLS)
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Figure 7: Structural Model 1
4.8 Model 2: Association between DFL and CS

Model 2 was built to analyze the overall association between variables.
4.8.1 Assessment of Measurement model/ Outer model

The model was tested using smart PLS. Convergent validity and discriminant validity
are assessed in the measurement model.

The construct validity and reliability can be calculated by examining the factor
loadings, and the loadings of higher than 0.50 on two or more factors is considered
significant (Hair et al. 2011).
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In the convergent validity, to increase the value of CR, some items were deleted. They
are; 5 indicators from Digital Financial Literacy (BK1, DM1, DM2, DM4, DM5), and
14 indicators from Economic Sustainability (EC1, EC2, EC3, EC4, EC5, EC6, EC7,
EC8, EC9, EC11, EC12, EC13, EC14). After deleting those indicators, the model 2
has a convergent validity.
Table 27: Reflective Measurement model 2
Item
Construct Item Loadings Alpha CR AVE
deleted
Digital BK2 BK1 0.732 0.954 0.959 0.542
Financial BK3 DM1 0.696
Literacy (DFL)
BK4 DM2 0.770
BK5 DM4 0.805
BK6 DM5 0.776
AW1 0.791
AW2 0.821
AW3 0.749
AW4 0.654
AW5 0.833
AW6 0.819
PK1 0.829
PK2 0.831
PK3 0.751
PK4 0.773
DM3 0.469
DM6 0.564
DM7 0.637
SP1 0.651
SP2 0.641
Corporate EC10 EC1 0.475 0.965 0.968 0.511
Sustainability EC15 EC2 0.456
(CS)
SS1 EC3 0.621
SS2 EC4 0.599
SS3 EC5 0.638
SS4 EC6 0.663
SS5 EC7 0.693
SS6 EC8 0.631
SS7 EC9 0.719
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SS8 EC11 0.705
SS9 EC12 0.728
SS10 EC13 0.724
SS11 EC14 0.747
SS12 EC16 0.720
SS13 0.749
EN1 0.750
EN2 0.762
EN3 0.723
EN4 0.736
EN5 0.830
EN6 0.800
EN7 0.786
EN8 0.771
EN9 0.767
EN10 0.815
EN11 0.667
EN12 0.807
EN13 0.706
EN14 0.778
(Source: Smart PLS)
As shown in table 27, CR is calculated from the factor loadings of the variables. All
the AVE values are above 0.5. So, these values are considered reliable. The Cronbach
alpha values are above 0.7, which states the reliability is high.

Table 28: Discriminant validity (Fornell-Larcker) – model 2
DFL SUS
DFL 0.736
CS 0.705 0.715
(Source: Smart PLS)
According to table 28, all of the square root of AVE (the bold values) are greater than
the correlation between the variables. So, the model 2 have adequate discriminant
validity.
63
Figure 8: Measurement Model 2
4.8.5 Assessment of Structural Model/ Inner Model


CS 0.498 0.495
(Source: Smart PLS)
According to the table 29, the R2 value for Corporate sustainability (CS) is 0.498,
which indicates 49.8% of Corporate sustainability (CS) is explained by Digital
financial literacy (DFL).
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Table 30: Hypothesis Testing model 2
Hypothesis Relationship M STDEV t value P values Decision

H1 DFL -> CS 0.712 0.038 18.419 0.000 Supported
(Source: Smart PLS)
According to the table 30, digital financial literacy was found to have a positively
significant relationship with corporate sustainability.
Figure 9: Structural model 2
65
4.8.7 Effects Size (f2)
ƒ2 values of 0.02, 0.15, and 0.35 indicates small, medium, and large effects
respectively. Effect size value lower than 0.02 represent that, there is no any effect.
Table 31: Effect size f2 model 2

DFL -> CS 0.990 Large
(Source: Smart PLS)
From the table 31, it indicates that digital financial literacy has large effect on corporate
sustainability.
4.9 Model 3 – Association between DFL and EC, EN, SS

4.9.1 Assessment of Measurement model/ Outer model
This model analyzes convergent validity and discriminant validity.

The construct validity and reliability can be calculated by examining the factor
loadings, and the loadings of higher than 0.50 on two or more factors is considered
significant (Hair et al. 2011).

The deleted items for increase the CR value are DM1, DM4, DM6, EC1, EC2, EC3,
and EC4. After deleting this items, this model achieved convergent validity.
Table 32: Convergent validity model 3
Alpha CR AVE
DFL 0.950 0.955 0.502
EC 0.910 0.924 0.505
EN 0.956 0.961 0.638
SS 0.937 0.945 0.569
(Source: Smart PLS)
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According to the table 32, this model achieved reliability since all the AVE values are
greater than 0.5. Also, the Cronbach alpha values are greater than 0.7, which implies
the reliability is high.
Figure 10: Measurement model 3

Table 33: Discriminant validity model 3
DFL EC EN SS
DFL 0.708
EC 0.446 0.710
EN 0.695 0.425 0.799
SS 0.600 0.515 0.772 0.754
(Source: Smart PLS)
67
Model 3 has sufficient discriminant validity since all of the square root of AVE (the
bold values) are greater than the correlation between the variables.
4.9.5 Assessment of Structural model/ Inner model

EC 0.199 0.194
EN 0.483 0.481
SS 0.360 0.357
(Source: Smart PLS)
According to the table 34, the R2 value for Economic sustainability (EC) is 0.199,
which indicates 19.9% of Economic sustainability (CS) is explained by Digital
financial literacy (DFL). Likewise, 48.3% Environmental sustainability (EN), and
36% of Social sustainability (SS) is explained by Digital financial literacy (DFL).

Table 35: Hypothesis testing model 3
Hypothesis Relationship M STDEV t values P values Decision

H1 DFL -> EC 0.457 0.063 7.076 0.000 Supported
H2 DFL -> EN 0.697 0.045 15.393 0.000 Supported
H3 DFL -> SS 0.610 0.042 14.191 0.000 Supported
(Source: Smart PLS)
As per the table 35, Digital financial literacy (DFL) has an association with Economic
sustainability (EC), Environmental Sustainability (ENV), and Social Sustainability
(SS).
4.9.7 Effect Size (f2)

Table 36: Effect Size (f2) model 3

DFL -> EC 0.248 Medium
DFL -> EN 0.936 Large
DFL -> SS 0.563 Large
(Source: Smart PLS)
The table 36 shows that, Digital financial literacy has large effect on Environmental
sustainability and Social sustainability.
68
Figure 11: Structural Model 3
4.10 Moderator Analysis

Bootstrapping method was used to examine the moderator analysis. The moderator
variable of this study is firm size, and it is measured by number of employees.
Model 1
Figure 12: Moderator analysis model 1
69
Table 37: Moderator Analysis model 1
Relationship M STDEV t value P values

EMP x SP -> CS -0.149 0.123 1.289 0.197
EMP x DM -> CS 0.024 0.057 0.492 0.623
EMP x PK -> CS -0.030 0.125 0.198 0.843
EMP x AW -> CS 0.194 0.188 1.079 0.281
EMP x BK -> CS -0.130 0.121 1.196 0.232
(Source: Smart PLS)
According to the table 32, firm size does not moderate the association between digital
financial literacy and corporate sustainability. Because the P values are higher than
0.005.
Model 2
Figure 13: Moderator Analysis model 2
Table 38: Moderator Analysis model 2
Relationship M STDEV t value P values

EMP x DFL -> CS 0.013 0.067 0.172 0.864
(Source: Smart PLS)
This overall model also implies that, there is no moderating effect of firm size between
digital financial literacy and corporate sustainability. Because the P values are higher
than 0.005.
70
4.11 Key Findings
Model 1 analysis - The association between all sub variables
Decision making, and self-protection are proven to have an association with economic
sustainability. However, basic knowledge and skills, awareness, and practical know
how show an association with economic sustainability.
Awareness and self-protection have significant association with environmental
sustainability, but basic knowledge and skills, decision making, and practical know
how does not have an association with environmental sustainability.
Awareness only has a significant association with social sustainability. The other sub
variables basic knowledge and skills, decision making, practical know how and self-
protection does not have an association with social sustainability.
Model 2 analysis – The association between main variables DFL and CS

Digital financial literacy (DFL) show a statistically significant association with
Sustainability of SMEs.
Model 3 analysis - The association between DFL with EC, EN and SS

The results show that, Digital financial literacy has a significant association with
Economic, Social and Environmental sustainability.
Moderator Analysis
Model 1
The moderator analysis model 1 show that, firm size does not moderate the association
between Digital financial literacy and Economic, Social, and Environmental
sustainability.
Model 2
The model 2 analysis show that, firm size firm size does not moderate the association
between Digital financial literacy and Sustainability of SMEs.
4.12 Discussion on Findings

The research was conducted to analyze the association of digital financial literacy with
sustainability of SMEs in Colombo district. SPSS statistical software, and Smart PLS
71
method were employed to examine the descriptive statistics and the developed
hypothesis by running 195 SMEs samples. The results indicate that, overall digital
financial literacy has a positive significant association on sustainability of SMEs.
The research was conducted to answer the following questions.
1. What is the association between digital financial literacy and sustainability of SMEs
in Sri Lanka?
To identify the association between digital financial literacy and sustainability of

SMEs in Sri Lanka, Smart PLS method was used to examine the following hypothesis.
H1: There is a strong association between Digital Financial Literacy and Corporate
sustainability of SMEs in Sri Lanka.
Based on the results, it can be concluded that, there is a statistically significant

association between digital financial literacy and sustainability of SMEs. The P value
of the outcome is (0.000) less than the critical P value (0.05). P value of digital
financial literacy is 0.000 which is less than the alpha value of 0.050. (P< 0.05). So the
researcher has accepted the alternative hypothesis. Our finding is similar with the
results of Winarsih et al, who found that financial technology and financial literacy
has a positive impact on business sustainability. Therefore this questions’ obejective
is fullfilled. Further, this research identified, digital financial literacy is important for
SMEs performance, and this is consistent with Candraningrat, who found that
innovation of fintech in financial sector increase the performance of SMEs in the
“Sarbagita” area. Also, Mabula’s study found adoption of technology in financial
practices helps SMEs performace on a positive way. However, our findings are
different with T.Angeles, who found that digital financial services do not have the
impact on financial behavior of MSMEs.
2. What is the association between digital financial literacy and economic

To find the impact of digital financial literacy on economic sustainability of SMEs in

Sri Lanka, the researcher has created the following hypothesis.
H1(a): There is a strong association between Digital Financial Literacy and Economic
72
According to the results generated, P value of the digital financial literacy on economic
sustainability is 0.000 which is less than the alpha value of 0.050. (P< 0.05) Therefore,
researcher has accepted the alternative hypothesis. Also the f value show that, digital
financial literacy has a medium effect on economic sustainability. Our finding is
consistent with Niken Safitiri, who found the digital financial literacy has a positive
impact on economic well-being of SMEs Sukabumi City and Regency Area (Safitri,
2022).
3. What is the association between digital financial literacy and social sustainability of
SMEs in Sri Lanka?
To find the impact of digital financial literacy on social sustainability of SMEs in Sri
Lanka, the researcher has created the following hypothesis.
H1(b): There is a strong association between Digital Financial Literacy and social
According to the results generated by Smart PLS, P value of the digital financial
literacy on social sustainability is 0.000 which is less than the alpha value of 0.050.
(P< 0.05) Therefore, researcher has accepted the alternative hypothesis.
3. What is the association between digital financial literacy and environmental

To find the impact of digital financial literacy on social sustainability of SMEs in Sri
Lanka, the researcher has created the following hypothesis.
H1(c): There is a strong association between Digital Financial Literacy and

environmental sustainability of SMEs in Sri Lanka.
According to the path co-efficient analysis, P value of the digital financial literacy on
environmental sustainability is 0.000 which is less than the alpha value of 0.050. (P<
0.05) Therefore, researcher has accepted the alternative hypothesis.
The importance of digital financial literacy to SMEs are answered by analyzing the
association between sub variables. Basic knowledge and skills involoved with basic
finacial conecpts such as numeracy, compound interest, inflation etc and basic digital
skills such as the knowledge of digital devices. The research found insignificant
association between basic knowledge and skills of financial and digital lteracty and
73
sustainability of SMEs. The findings was supported by Zaitul et al, who found
adoption of digital platforms such as social media is low in SMEs eventhough their
financilal literacy is high (Zaitul, 2022). In addition to that, Jacob Nunoo found, the
financial literacy of SMEs is modest. He concluded that the SME owners face
diffculties in application of financial litercy to the performance of SMEs (Nunoo,
2012).
According to our findings, awareness showed a positive significance towards

environmental sustainability and social sustainability. This depicts, most of the SMEs
in Colombo district are aware of financial products and services like payments,
deposits, loans etc, and digital applications to achieve sustainability. This is similar to
the finding of Suria et al (2022), they indicated that SMEs have the knowledge and
awareness towards the digital financial products and services (Suria et al, 2022).
However, our study found that, Basic knowledge and skills, awareness, and practical
know how did not have an association with economic sustainability. This is supported
by Mashizha et al (2019), who found that the SMEs had lower level awareness and
utilization towards investment, term deposits and shares in Zimbabwe because of the
unfavorable economic environment, the SMEs are dicouraged to involve in invetsment
activities eventhough they are familiar with mobile banking services (Mashizha,
2019). Our results show that, decision making and practical know how did not have an
association with environmental sustainability and social sustainability. Decision
making involved in managing day to day finance, saving behavior, borrowing
decisions etc. Our finding was consistent with Angeles T (2022), who found the digital
financial services are used for basic needs and not for savings, budgeting, and
borrowing by owners of SMEs. But decision making had a positive significant
relationship with economic sustainability. This was supported by Rasheed et al (2019),
who found that digital financial services supported SMEs to make smooth
management and finance decisions (Rasheed, 2019). Self-protection had a positive
impact on environental sutainability. This is consistent with Suria (2022) and the study
found that, the SMEs had a self-protection activities and aware of the risks when using
digital platforms such as fintech. However, practical know how and self-protection did
not have a significant relationship on social sustainability.
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Although digital financial literacy has a significant impact on sustainability of SMEs,
yet they have lack of knowledge and awareness towards digital financial products and
services. In developing economies like Sri Lanka, adopting digital platforms to the
business activities of SMEs is a big challenge. But it is essential to adopt digital
services and products to maintain sustainability in the economic crisis.
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5 CONCLUSIONS AND RECOMMENDATIONS
5.1 Introduction
This chapter gives a final conclusion on the impact of digital financial literacy on
sustainability of SMEs based on the findings. Section 5.2 draw a conclusion on the
research analysis. Section 5.3 discusses test the theories used in this research and give
implications. Then, the section 5.4 describes the implications for practitioners. Section
5.5 deals with limitations and future research. The last section 5.6 outlines the
recommendations.
5.2 Conclusions
This research attempted to examine the impact of digital financial literacy on
sustainability of small and medium scale enterprises in Colombo district in Sri Lanka.
this research tried to justify the research problem through the output of the analyses.
The study concluded that, digital financial literacy has a significant association with
economic, social, and environmental sustainability. Firm size has no moderating effect
between the association of digital financial literacy and sustainability of SMEs.
In developing economy like Sri Lanka, SMEs suffer from lack of digital and financial
knowledge. Digital financial literacy is a new concept that boosts the financial
performance of organizations. As the backbone of economy, SMEs need to adapt
digital financial literacy to increase their business performance. The study revealed
digital financial literacy has a significant association with corporate sustainability of
SMEs, but they face some digital and financial problems. As per our results, it
represents they still do not have adequate basic knowledge, awareness and practical
usage on digital financial literacy. Every SMEs must understand these problems and
overcome it by understanding the significance of digital financial literacy to their
business operations.
5.3 Theoretical Implications

According to the resource based theory, SMEs must have adequate resources to
increase their performance. However, SMEs do not have sufficient resources. As per
our research study, many of the SMEs are lack of finance, human and technological
resources. According to our survey, many SMEs have maximum 5-15 employees.
76
SMEs suffer to raise funds and in the economic crisis many SMEs left from the
industry due to the financial problems. As per our questionnaire survey, many owners
of SMEs are not well educated, and they have lack knowledge in finance. So, they are
unable to make efficient financial decisions to their better performance and achieve
competitive advantage. Also, adapting new technology is unavailable in most of the
SMEs. They do not have internet facilities, digital devices, email address and website.
Nowadays, many customers prefer cashless transactions. Most of the business

operations are digitalized and they depend on digital devices. Nowadays, we cannot
find any business without technology. Most of the organizations uses digital financial
platforms to increase their financial resources. So, SMEs need to improve their
financial resources using digital financial platforms to ensure their sustainability in
this current economic trend. Digital financial literacy is much needed for SMEs for
their sustainable growth because it helps in increase in sale and profit and also make
effective financial decisions. But the lack of resources in SMEs increase the barriers
in adapting digital financial literacy to their continuous process and long term well-
being. This research is helpful to identify the problems in SMEs and give the
importance of adapting digital financial literacy to achieve long term sustainability by
making effective financial decisions using digital financial platforms.
5.4 Implications for practitioners

This study is beneficial for the SMEs in the Colombo district. Colombo is the capital
city in Sri Lanka, and there are most of the number of SMEs operate in Colombo
district. But many SMEs do not have the knowledge on digital platforms. They do not
have the facility to adapt technology in their business activities. So, they are having
lack knowledge in financial literacy and digital platforms. As per our survey, owners
are the key stakeholder to SMEs. Because most of the SMEs are owner based. So,
owners must have good digital financial literacy to run the business in an effective
way. The owners’ financial decisions may impact on the business performance. They
have adequate knowledge in financial literacy when making financial decisions. Also,
they should have the clear understanding about the digital financial platforms to
improve their financial resources in order to avoid financial issues. They have to adapt
digital methods to invest, save, and borrow money to meet their financial needs. This
research is expected to support SME owners and managers to solve their financial
77
problems and make efficient decisions by enhancing their knowledge towards digital
financial literacy.
This study gives the information to the owners and managers of SMEs about the
importance of digital financial literacy for SMEs’ sustainability. But SMEs don’t have
sufficient facilities and resources to adapt digital financial literacy to their business
operations. They do not have adequate financial, technological and human resources.
As we know, SMEs are essential for economic growth. This research presents the
current situation of SMEs to the public, government and policy makers to consider and
support SMEs by facilitating the sufficient resources in order to develop our economy.
5.5 Limitations and Future Research

This research has some limitations. First, the sample was drawn from only one district
in Sri Lanka. Extending the sample will provide more information about the country’s
picture. In future, it will be helpful to the SMEs to understand the importance of digital
financial literacy to their sustainability. Second, the sample size of the study is 382
SMEs, but this study was unable to collect the data from the 382 SMEs. The study
collected data from 195 SMEs using convenient sampling method. Future researchers
are encouraged to collect data using purposive sampling method.
Third, this study is not based on cause and effect relationship because of the cross
sectional design. It is suggested that more research to be done using longitudinal
studies to examine the past year trends of SMEs. Fourth, this study limits its analysis
by only considering the small and medium enterprises in Sri Lanka. This research
expects more research to examine the impact of digital financial literacy on
sustainability of different industries in the current economic crisis. At last, this study
uses questionnaire method to collect data. It takes more time to collect data from
respondents and the reliability is low because respondents may be biased.
5.6 Recommendations
According to the findings, it is recommended to improve the digital financial literacy
skills and knowledge for SME owners. SME owners must know how to make financial
decisions using digital financial platforms. Due to the current economic crisis situation
of the country, SMEs need to increase their financial performance using digital tools.
Many SMEs do not have e-mail address, internet or website. They have lack of
78
knowledge in financial and digital financial literacy. Also, SMEs should be facilitated
the required resources to increase their performance and ensure their long term
sustainability to support the economy. It is recommended for SME owners and
managers to have some training and awareness sessions about digital financial literacy
and effective financial decisions. In this current country condition, SMEs should adapt
digital platforms to their sustainability as well as spur the economic growth.
79
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THE IMPACT OF DIGITAL FINANCIAL LITERACY

ON SUSTAINABILITY OF SMALL AND MEDIUM

BSc. (Honours) in Accountancy and Business Finance

Wayamba University of Sri Lanka

My heartfelt thanks to my friends and coworkers do to make my experience joyful in

1.2 Background of the Study

1.3 Motivation of the Study

1.4 Problem of the Study

Digital financial literacy helps businesses in ease of access of financial transactions

1.5 Research Objectives

1. To analyze the association of digital financial literacy and sustainability of SMEs

1.6 Research Questions

1. What is the association between digital financial literacy and sustainability of

1. What is the association between digital financial literacy and economic

1.7 Significance of the Study

1.8 Scope of the Study

1.10 Chapter Organization

1.11 Chapter Summary

Year Author Definition

Year Author Definition

According to Brundtland commission (1987), “corporate sustainability is meeting the

Gladwin, Kennelly, and Krause (1995) defined sustainability as, “a process of

In addition to the above definitions, Winarsih et al. (2020) defined business

Financial decisions plays a significant part in business operations. These decisions

Author Title Findings

Juma Buhimila Mabula, Use of Technology and Significant relationship

Winarsih, Mutoharoh, The Role of Fintech and Financial literacy in the

Stephanie Efua Financial literacy, access to Financial literacy

In addition to the previous study, Kulathunga et al (2020), studied the influence of

Further, Frimpong et al (2022) examined the interconnection between financial

Similarly, Astari and Candraningrat (2022) conducted a research to evaluate the

Author Variables Measurement

Budgeting Financial 4 questions

Record Keeping Skills: 4 questions

Tax Compliance: 3 questions

Likert scale questions of 5 points.

Likert scale questions of 5 points.

Likert scale questions of 5 points.

Access to finance: Ten items were used to measure using

Financial risk attitude:

Financial Literacy: Measurement scale developed by

Independent 3 indicators: The use of market

Stephanie Efua Dependent

Digital literacy: 10 items

Finance literacy: 5 items

Ni Putu Rika Dependent

Chepngetich (2016) analyzed the relationship between financial literacy and

Asakania (2016), used 4 independent variables to evaluate the influence on dependent

Same as to the previous, Candraningrat and Astari (2022) conducted a research on

2.6 Gap Analysis

Author Topic Gap

Francis Mukatia Influence of financial 1. Sample was selected from 2

Stephanie Efua Financial literacy, access to 1. A cross-sectional survey was

Imelda T. Angeles The Moderating effect of 1. Researcher failed to include

Yakob et al (2021), examined the influence of financial literacy on the performance of

Further, Frimpong et al (2022) conducted a research in Central region of Ghana. The

2.7 Chapter Summary

3.2 Research Philosophy

3.3 Research Approach