Nafisa Ali

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Entrepreneurship’ and ‘Financial Literacy’ are interconnected, but is financial literacy required for an entrepreneur? Is it possible to manage a business effectively and efficiently without having a basic knowledge of finance? The logical response would be that one may manage a business without even having any business knowledge, but some financial understanding helps an entrepreneur to be effective not only in managing a business but also in her personal finance. There is evidence that financially savvy entrepreneurs are more likely to plan better for their business ventures as well as retirement saving patterns. Without financial planning entrepreneurs often face capital deficiency and create obstacles as they do not set aside sufficient cash savings to meet immediate needs. Moreover, they are often unaware about the new policies and loan schemes provided by banks to promote entrepreneurship on a large scale.

An entrepreneur is an individual who creates value in an economy by shifting resources from low productive areas to higher as defined by Say (1803). He further added having specialized knowledge for an entrepreneur is a must as it keeps her aware of the costs and prices of products. In addition, having that extra knowledge helps to compare among new opportunities. It is very common that individuals do not have the necessary financial knowledge for making crucial business decisions (Braunstein and Welch, 2002; Perry, 2008). Proper financial management and planning takes an entrepreneur towards a successful and sustainable venture in an efficient way.

As stated by the US Financial Literacy and Education Commission, financial literacy is the capacity of making effective actions regarding present and upcoming management of money usage along with the ability of taking versed decisions (Basu, 2005). A financially literate business owner has full control over his or her business. Entrepreneurs with clear understating of finance make higher gross margin and revenue growth (Alperovych, Calcagno & Lentz,2020). An entrepreneur makes better business decisions if she understands technicalities of business such as balance sheets and profit and loss statements, which helps the entrepreneur to sustain in a competitive market.

When people have low financial literacy, they cannot manage and gather capital efficiently (Hilgert et al., 2003; Stango and Zinman, 2007). At the same time, they have little or no knowledge of after-retirement activities (Lusardi and Mitchell, 2006, 2007; Lusardi et al., 2009). A survey conducted by Haiyang and Volpe (2002) on financial literacy among college students in the USA shows that women generally have less knowledge about finance and as a result, they are less enthusiastic about financial knowledge and skills than men. The author further added that financial learning can change the view for both men and women meaningfully. A very recent study by Tinhog et al. (2021) investigate that gender disparity in financial literacy is linked to stereotyping threats and differences in financial matters. Stereotype threat in the financial domain could affect the observed gender gap in financial literacy in different non-mutually exclusive ways. In the financial arena, stereotype threat might have a variety of non-exclusive effects on the observable gender disparities in financial literacy.

To explore further the correlation between entrepreneurship and financial literacy, primary survey data has been used for various analyses to get a glimpse of Bangladeshi entrepreneurs’ thought processes. An independent primary study has been conducted by the Research and Professional Development Center (RPDC) of BRAC Business School, where 40 surveyors were employed across Bangladesh in 8 different districts, revealing insights about the Financial Literacy and Financial Access of Bangladesh. A total of 3121 responses were collected through random sampling technique and among them 1241 respondents were entrepreneurs

Figure 1: Entrepreneur’s Bank Account Accessibility

An entrepreneur should always separate their personal and business capital. In this way, tracking cash flow would be easier and by this, she would always know how to plan for her business activities as well as manage her budget. For instance, a current account just does not save an entrepreneur from hiccups by keeping track of vendors and customers; rather, it is more like an easy medium for regular business activities. However, from our primary survey, we found that in Bangladeshi prospective entrepreneurs’ banking activity is quite scarce. They are either unaware or uninterested in lucrative deals and offers available to small and medium scale entrepreneurs. Mr. Masudur Rahman, the chairperson of the SME foundation emphasized in loan disbursement framework’s reformation process in a webinar, a few months ago. He added that building the capacity of the SME entrepreneurs is vital for their financial inclusion where there is a severe lack of capacity in their financial literacy, especially those residing outside of Dhaka (Star Business Report, 2021).

In figure 1, it is visible that the difference is quite huge among male and female entrepreneurs in terms of banking activity. Over 64% of surveyed males have access to bank accounts while only about 55% of females have the same. Saifuddowla Shamim, head of SME at IDLC Finance, said that women tend to pay their loans back promptly. Hence, focusing on women would be more beneficial. He also added that there were more than 80 lakh SME entrepreneurs in the country who need to improve their financial literacy (Star Business Report, 2021). Policy reformation or framework will not be advantageous if entrepreneurs do not have the minimum knowledge about financial access or activities.

Figure 2: Entrepreneur’s Online Banking Vs Mobile Wallet usage

In today's digital age, banking is not as backward as it used to be in the past as mobile banking and internet banking facilities make the banking experience easier. In this regard, the BB report shows that entrepreneurs are tending to use mobile wallets such as Bkash or Nagad more than internet banking. This is because regular transactions are much more convenient over mobile wallet services.  When inquired about preference of conventional and digital banking, our survey showed that out of 1241 entrepreneurs 513 people do not visit and 728 people occasionally visit banks for different services. It further said that 904 people use mobile wallets for cash out, cash in, savings, bill payment, send money, etc. whereas 337 people don’t use this wallet (See Figure 2). Through mobile wallets, people can avail a lot of financial services at convenience through an application. That is why people do not have to go to the bank to do small transactions now. As a result, they have less knowledge of the services that banks are providing for startup businesses or entrepreneurs. Furthermore, during an online Women Entrepreneurship Program- ‘Venture Maestras’ (September 18,2021- January 19,2022) by Research and Professional Development Center, BRAC Business School, a session has been taken to train around 30 participants on the Bank Lending Process.  There, many entrepreneurs expressed that they were so unaware of the facilities banks are giving to entrepreneurs.

Nowadays many banks claim that their online banking functions are much easier but in practice, it is not. According to an article published in Financial Express by Iqbal (2018) expressed that a very common complaint about internet banking is that making a deposit is often slow. Unless an individual goes for direct deposit payroll then mailing the cheque or using an automated teller machine (ATM) might be obligatory. This procedure will take quite a few times and even may be subject to a hold. He added that another similar problem, is opening an account with another bank just for transferring deposits. All these issues create hassles for general public.

Figure 3: Entrepreneur’s Money Saving Method

There is a saying that ‘Little drops make the mighty ocean’. We all save some amount of money little by little when we can. Most entrepreneurs start their own business with their savings and create a big empire. Some people deposit at the bank, some at Mobile wallet while others save at home. In our survey, we found that nearly half of the entrepreneurs save money at home. It is more shocking that a large portion of male entrepreneurs, 439 out of 537, save money at home (Figure 3). Usually in our country, the male figure goes out more for various activities outside the house. Hence, they prefer to make the deposit on the way back and forth from home to work. Furthermore, a thought-provoking fact in Asia appeared during a survey in India. As per the survey, it stated that a majority of laborers saved cash by storing it at home despite that they held credits on usury from money lenders (Financial Express, 2008).

During a session in Venture Maestras training program on Financial Management, a female entrepreneur making baby food mentioned that she did not think about saving money from her hard-earned profit until she attended that session on Finance. That session made them think about budgeting and saving for the future, no matter what the amount is. Due to inexplicit ideas about saving many people do not have a proper retirement plan or investment plan. Even though we have asked in our survey if they are saving money for their retirement planning, 500 entrepreneurs said confidently that they are saving and others seemed not so sure. If entrepreneurs start saving some money in a bank or investing in any bank’s scheme then the money will not only give them a greater return but also will help the economy alongside.

Figure 4: Entrepreneur's Knowledge on Time Value of Money

Generally, it is expected from citizens to have very basic knowledge of finance. In developed countries, usually, people possess primary or extensive knowledge in finance and that’s the reason they are good in investment and business. On the contrary, for a country like ours, this is almost nonexistent, especially when the number of unprivileged populations is higher. However, from my perspective, business entrepreneurs should be literate financially, not necessarily in a comprehensive manner but rather somewhat in portions. Time value of money is a very common term for people of every background and as per the graph says entrepreneurs have poor knowledge on time value of money. Figure 4 shows a relatively lower number of Bangladeshis who are literate in this matter where only around 17% of respondents answered correctly. People having less knowledge of finance face more complications with debt (Lusardi and Tufano, 2008) and also these groups of people are reluctant about investing in the stock market (Van Rooij et al., 2007).

When an entrepreneur is financially literate to some extent it creates an easy path of success comparatively than those who are lacking. These two combinations are the key that helps an individual to run the business sustainably. Starting a business is very easy. One just needs some capital and some courage. However, to sustain the business proficiently in the long run through hurdles is the main challenge for an entrepreneur. While the ongoing onslaught of COVID 19 has made this goal of entrepreneurial success just a bit harder to attain, the basics remain the same- innovation, bravery and just a pinch of knowledge in the relevant areas.



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