Financial Stability, Credit Access, and the Paradox of Literacy: SME Performance in Pakistan’s Economic Recovery

Abstract

This research paper investigates the influence of financial factors on the development of small and medium-sized enterprises, with particular emphasis on periods of economic recovery following a crisis. The analysis centers on three primary financial dimensions: financial stability, accessibility of credit, and financial literacy. Data was collected from a sample of 150 small and medium-sized enterprises in Pakistan using regression analysis. One significant finding is that traditional financial indicators, such as the current ratio, which measures liquidity, and loan approvals, do not have a notable impact on the growth of small and medium-sized enterprises during the post-crisis phase, hence not strong growth drivers. Unexpectedly, financial literacy, often regarded as a critical determinant of business success, also demonstrated minimal effect on the performance of these enterprises. These results challenge conventional assumptions regarding the determinants of small and medium-sized enterprise growth during economic recovery. The study contends that internal financial metrics may be less influential than previously believed, while external and adaptive factors are gaining importance. For example, the research underscores the increasing relevance of digital financial tools, sound management practices, and adaptable financial behaviors that enable businesses to adjust swiftly to dynamic market environments. The findings explain that merely enhancing financial access for small and medium-sized enterprises is insufficient; rather, financial literacy is now more crucial in the modern business context. Consequently, policymakers and business leaders are encouraged to reorient their approaches by placing greater emphasis on adaptability and innovation in financial management practices.

Keywords: Financial Stability, Financial Literacy, Access to Credit, Digital Finance