Financial management practices and Agri-SME performance: does subjective financial literacy hold the key?

This study investigates how four key financial management practices (FMPs), namely the working capital, capital budgeting, financial reporting, and financing affect Agri-SME performance in Tanzania, focusing on the mediating role of the manager’s subjective financial literacy (self-perceived competence). Using a cross-sectional survey of 385 Tanzanian Agri-SME managers, data were analyzed via PLS-SEM with 5,000 bootstraps. Anchored in the Resource Based View and behavioral finance, results show that financing practices (β ≈ 0.17) and subjective literacy (β ≈ 0.13) significantly enhance performance (p < 0.05). Furthermore, working capital management and capital budgeting significantly boosted subjective literacy (p < 0.05). Importantly, financial reporting significantly reduced perceived competence (β≈−0.23, p < 0.05), suggesting potential cognitive misalignment. Indirect paths via literacy were positive but not statistically significant (p > 0.05). The study recommended that support programs must pair access to finance with capability building that bolsters perceived financial competence, and reporting tools must be simplified.