Is financial literacy necessary in sustainable entrepreneurship?






“Entrepreneurship” and “financial literacy” are interconnected, but is financial literacy required for an entrepreneur? Is it possible to run a business effectively and efficiently without having a basic knowledge of finance? The logical answer would be that one can run a business without even having any business knowledge, but some financial understanding helps an entrepreneur to be efficient not only in running a business but also in their personal finances. There is evidence that financially savvy entrepreneurs are more likely to better plan their business ventures as well as their retirement savings habits. Without financial planning, entrepreneurs often face insufficient capital and create roadblocks as they do not set aside enough cash savings to meet immediate needs. Moreover, they are often unaware of new policies and loan programs offered by banks to promote large-scale entrepreneurship.

When people have low financial literacy, they cannot effectively manage and raise capital. To further explore the correlation between entrepreneurship and financial literacy, primary survey data was used for various analyzes to gain insight into the thought processes of Bangladeshi entrepreneurs. An independent primary study was conducted by the Professional Research and Development Center (RPDC) of BRAC Business School, where 40 investigators were employed across Bangladesh in 8 different districts, revealing insights into financial literacy and financial access in Bangladesh. A total of 3121 responses were collected by the random sampling technique and among them 1241 respondents were entrepreneurs.

Figure 1: Accessibility of the entrepreneur’s bank account

An entrepreneur should always separate his personal and professional capital via a bank account. Cash flow tracking and budget management would be easier this way. For example, a checking account simply doesn’t save an entrepreneur from the hiccups of keeping track of suppliers and customers; rather it is an easy way for regular business activities. However, from our main survey, we found that in Bangladesh, the banking activity of potential entrepreneurs is quite rare. They ignore or are uninterested in the lucrative deals and offers available to small and medium entrepreneurs.

In Figure 1, it is visible that the difference is quite huge between male and female entrepreneurs in terms of banking activity. Over 64% of men surveyed have access to a bank account, while only around 55% of women have one. The reform or policy framework will not be beneficial if entrepreneurs do not have the minimum knowledge about financial access or activities.

Figure 2: Use of online banking by entrepreneurs versus mobile wallet

In today’s digital age, banking is not as backward as it used to be as mobile banking and internet banking facilitate the banking experience. In this regard, BB’s report shows that entrepreneurs tend to use mobile wallets such as Bkash or Nagad more than Internet banking. Indeed, regular transactions are much more convenient than mobile wallet services. Thanks to mobile wallets, people can avail many financial services at their convenience through an app.

In addition, during an online female entrepreneurship program “Venture Maestras” (September 18, 2021 – January 19, 2022) by the Center for Research and Professional Development of BRAC Business School, a session was organized to train about 30 participants on the bank loan process. There, many entrepreneurs said that they are so unaware of the facilities that banks give to entrepreneurs because they go to the bank less often because the mobile wallet now makes their life easier. And also, many online banking functions of banks are not easier in practice.

Figure 3: Entrepreneur’s Money Saving Method

There is a saying that “little drops make a big ocean”. We all save money little by little when we can. Most entrepreneurs start their own business with their savings and create a great empire. Some people deposit in the bank, some in the mobile wallet while others save at home. In our survey, we found that nearly half of entrepreneurs save money at home, especially a large portion of male entrepreneurs, which is quite shocking. A female baby food entrepreneur mentioned at Venture Maestras’ financial management training session that she hadn’t thought about saving money from her hard-earned profits until she attended at this finance session. This session got them thinking about budgeting and saving for the future, regardless of the amount. Due to inexplicit ideas about saving, many people do not have a proper retirement plan or investment plan. If entrepreneurs start saving money in a bank or investing in the program of any bank, the money will not only give them a better return, but also help the economy.

When an entrepreneur has some degree of financial knowledge, it creates an easy path to success compared to those who lack it. These two combinations are the key to helping an individual run their business in a sustainable way. Starting a business is very simple. All it takes is a little capital and courage. However, sustaining the business competently over the long term through the hurdles is the main challenge for an entrepreneur. While the continued onslaught of COVID 19 has made this goal of entrepreneurial success a little harder to achieve, the basics remain the same: innovation, courage, and just a pinch of knowledge in the relevant fields.

Disclaimer: The article belongs to the Professional Research and Development Center (RPDC) – BRAC Business School and the detailed version of this article is available on the RPDC website.

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Sarah J. Greer