Financial Management and Its Barriers on Smes in Selected Developing Countries: A Systematic Literature Review Approach

Small and medium enterprises (SMEs) are an important strategic sector and major economic driver for many countries in the world, particularly low-income countries, including Ethiopia. However, this sector has been facing various challenges to achieving performance growth and sustainability of which the financial management system is an indicative constraint. Thus, this write-up attempts to determine the existing financial management practices and their associated barriers that affect the soundness of the financial management practices of SMEs in developing countries. The specific objectives this review tries to achieve were to review and know the extent of financial management practice soundness among SMEs in selected developing countries; synthesize the major barriers that affect the soundness of financial management practice among SMEs in developing countries; gain insight into the gaps of the study for future research direction and develop a conceptual framework. A descriptive research design with a qualitative approach employed; secondary sources of data used and collected from published research articles from 2020 to 2024. Eleven (11) articles, two (2) MA theses, and one (1) PhD thesis selected purposefully. A meta-analysis approach adopted to investigate the patterns of empirical study findings. Besides, the literature review result showed that the financial management systems adopted by SMEs in selected developing countries were poor. In addition, reviewed literature indicates the major barriers that affect the soundness of the financial management of SMEs in selected developing countries were lack of adequate financial literacy for both managers and owners. Besides, the study found that the major gaps in the empirical study were the geographical scope gap and the methodology gap. In addition, the majority of studies conducted on the financial management of SMEs in selected developing countries did not include all financial management components. Based on the above-mentioned findings, this review concluded and recommended that the majority of SMEs operating in selected developing countries, including Ethiopia, should manage their finances in a poor manner due to the inadequacy of financial literacy skills for owners and managers. Therefore, financial skills shall be improved through conferences, workshops, and training programs. Moreover, the basic financial subjects need to be included in the lower-level education curriculum by the African countries’ ministries of education. Further, the study revealed that most of the gaps in the empirical study were geographical scope and methodology, which dropped the most important financial management proxy variables, so the forthcoming researchers could do better to study these predetermined gaps in developing countries, particularly in the Ethiopian context.