Impact of religiosity and branding on SMEs performance: does financial literacy play a role?

Abstract

Purpose This study aims to examine the relationship between religiosity and branding on small- and medium-scale enterprises (SMEs’) performance in Saudi Arabia. It also examines the mediating role of financial literacy on the relationship among Islamic religiosity, branding and SMEs’ performance. Design/methodology/approach This study adopts the purposive sampling technique in three major commercial cities, namely, Riyadh, Jeddah and Al-Qassim to sample 100 SMEs each, resulting in a total sampling of 300 SMEs in Saudi Arabia. Structural equation modeling is used to analyze the hypotheses formulated in this study. The structural equation modeling is aided with the help of Smart-PLS software. Findings This study finds that Islamic branding (on customer, compliance and origin) significantly affect financial attitude, while Islamic religiosity affects financial awareness among the SMEs. Findings reveal that there is a mediating role of financial awareness on the relationship between Islamic branding and Islamic religiosity with the SMEs’ performance. No mediation effect was recorded for financial attitude and financial knowledge. Further investigation reveals that financial attitude, financial awareness, Islamic branding (compliance and origin) and Islamic religiosity were the most significant determinants of SMEs’ performance in the context of Saudi Arabia. Research limitations/implications This study is conducted on SMEs in Saudi Arabia only. Further studies are required to examine SMEs in other Islamic countries and regions to improve the explanatory power of financial literacy on Islamic religiosity and Islamic branding for improved SMEs performance. Originality/value This study establishes that Islamic religiosity and branding could further increase the predictive power of financial literacy on SMEs’ performance. This study concludes that efforts to improve financial literacy should be religion-based as well as culture-based depending on where the SMEs are located so that specific strategies can be implemented, to enable the conducive growth of the SMEs and maximize the contribution of the SMEs to economic growth.