Financial Management Practices of Agri-SMEs: An Investigation of the Nature and Extent of Practices’ Implementation

The success of agricultural small and medium enterprises (agri-SMEs), among other factors, heavily relies on their ability to manage their finances effectively. This study examined the extent to which agricultural SMEs in Tanzania practice financial management activities. The study employed a cross-sectional survey design and higher-order reflective-formative structural equation modelling. Data was collected in 2022 from 427 SMEs in Mara, Dar es Salaam, and Morogoro regions using a structured questionnaire. Descriptive statistics were used to analyze the data. Results indicated moderate adoption of financial management practices. Specifically, SMEs were found to frequently engage in working capital management practices, such as maintaining sufficient cash flows and records for payables and receivables. However, financial reporting practices were less frequently practiced, with SMEs reporting less frequent preparation of financial statements and financial analysis. Financing accounting practices were also found to be moderately implemented. In addition, capital budgeting and financing management practices were also infrequently practiced, with external financing sources being utilized less frequently compared to internal financing sources. The total effects analysis indicates that all lower-order constructs significantly contributed to the higher-order construct of Financial Management Practices, with Capital Budgeting Practices demonstrating the strongest impact. The findings highlight the need to improve financial reporting, analysis, and external financing usage in Tanzanian agri-SMEs. These findings offer valuable insights for policymakers and stakeholders to design appropriate strategies and policies to support the development of agricultural SMEs in Tanzania including improving access to financial resources and provide training programs that promote sustainable financial management practices.