Small and Medium Enterprises (SMEs) play a significant economic role in local, national, and global economies. 90% of economically active SMEs contribute to 60% of the GDP in developed and developing countries. They also have severe deficiencies in access to financial resources, low competitive advantage, and are extremely susceptible to disruptive shocks. The financial resilience of SMEs is significant to the process of adopting financially in the face of shocks to survive during turbulent periods. These shocks have different frequencies for SMEs, in terms of catastrophic events and market disruption trends. The literature reveals that SMEs have suffered from natural disasters, political turmoil, economic crises, market access challenges, institutional failures, and infrastructural and technological obstacles in their business recovery. SMEs can also be vulnerable to economic downturns and other external factors that affect their financial resilience. From this view, this study offers a new perspective on SMEs continued resilience in the industry most especially after the pandemic. This has been viewed as subject to business collapse and mushrooming SMEs amidst COVID-19 impact. The study examines the relationship between management ineptness, gender diversity, digital payments and financial resilience of SMEs in Uganda. The study uses the resource-based view, organization ecology and the diffusion of innovations theory. The study uses both qualitative and quantitative approaches on a cross-sectional survey.

Key Words: Financial resilience, Managerial ineptness, Gender diversity, Digital payments, SMEs, Uganda.

1. Background to the study

Small and Medium Enterprises (SMEs) operate in the informal sector. Their success relies on factors such as nature, size, and sales volumes from different contexts (Khalili et al., 2022). Over time, these businesses often struggle with financial difficulties (Abdulai et al., 2024). In many countries, SMEs consider financial resilience (FR) a major challenge (Odoch et al., 2024). Mainstream banking systems exclude them without access to financial resources (Nassuna et al., 2023). As a result, they have low competitive advantage and are highly vulnerable to disruptive shocks (Kaya & Uzay, 2017; Asgary et al, 2020). To improve their FR, SMEs use internal resources and digital finance to fund their operations, despite management issues (Nkundabanyanga et al. 2024). This study focuses on the use of internal resources to fund their operation

SMEs also play a vital role in socio-economic transformation in the global economy (Asgary, Ozdemir and Özyürek, 2020; Chatterjee et al. 2015; OECD, 2014). According to Mbuyisa & Leonard (2017) and Igwe et al, 2018), around 90% of economically active SMEs contribute up to 60% of the GDP in both developed and developing countries. Szabo et al. (2024) stress that the FR of SMEs is crucial for job creation and innovation. It helps SMEs adapt to shocks and survive during difficult times (Carvalho, et al., 2016). SMEs face shocks and disruptions (McKinsey Framework, 2021). These events affect them in various ways, leading to catastrophic outcomes and changing market trends (Bertschek et al. (2017). Since SMEs are less resilient than larger companies, and governments often struggle to support them during crisis (Lyaskovskaya & Shindina, 2018), the FR of SMEs is essential. It supports even fragmented SMEs, including informal ones, helping them create decent jobs globally (Saad et al, 2021). Ultimately, it aims to end poverty, improve working conditions, and reduced inequalities (UN, 2022).

After Covid-19, SMEs in developing countries experienced significant sales drop, 12.2 percentage points larger than that of large firms (Amin et al., 2023). Telukdarie et al (2023) state that SMEs worldwide face major challenges such as time, costs, and a resources as key obstacles to adopting digital technologies. This trend is also seen in Sub-Saharan Africa and Uganda. The policies supporting African SMEs do not seem to greatly improve their FR (Atiase et al., 2022). However, FR of SMEs is vital for the African Union’s Agenda 2063 and the UN Agenda 2030 (World Bank, 2024). As Nassuna et al (2023) suggest, a large number of SMEs were negatively affected by the Covid-19 pandemic and lockdown.

The debate on FR has shifted its focus to cover economic and health shocks (Ali et al., 2017; Salignac et al., 2019; Scott et al., 2023). Additionally, it now encompasses topics, such as sustainable development, poverty, gender diversity, management failings, and digital payments (Nkundabanyanga et al, 2024; Mahadi et al., 2023). Research by Carvajal, et al. (2024) has yielded mixed results on the impact of shocks on individuals and households in terms of FR. On the other hand, Onjewu et al (2022) found that government support plays a crucial role in triggering and enhancing resilience. In Uganda, for instance, the government has supported the SMEs through initiatives, such as SMEs recovery fund and Women’s fund (FSDU, 2022), which can increase FR. However, SMEs face financial constraints such as the credit gap (World Bank, 2024), which can hinder their FR. Ozanne et al (2022) argue that measures, such as gender diversity and digital payments may not always lead to increased FR. Nevertheless, SMEs can maintain their FR by adopting these strategies, which motivates them to improve their management skills. Trieu et al (2023) found the use of information technology can stimulate the resilience and performance of SMEs. While some studies suggest that SMEs have lower FR during crises, others disagree (Varum & Rocha, 2013).

Few studies have examined how management issues, gender diversity, and digital payments contribute to the FR of SMEs in Uganda. As such, this study aims to fill this gap, focusing specifically on Gulu city Northern Uganda. According to organizational ecology theory, the growth, startup, and occasional failure of SMEs are influenced by their operating conditions, which affect FR over time (Baum and Amburgey, 2002). SME owners can change business decisions based on the age and size of their businesses. However, poor management is often linked to firm failures (Nkundabanyanga et al., 2024). The resource-based view theory suggests that SMEs thrive by depending on their internal resources, which provide a competitive advantage due to their rarity and difficulty to imitate (Barney, 1991). The theory of diffusion of innovations explains how new ideas, such as digital payments, spread among individuals and organizations, considering factors like relative advantage, compatibility, complexity, trialability, and observability (Rogers, 1962). This theory also associates SMEs’ FR with their digital technology, helping them survive the pandemic (Khalili et al., 2022). For example, few SMEs in rural Wales can digitally transact regarding their goods and services (Moris et al., 2022), making them feel digitally connected and resilient. To achieve FR, SMEs will likely rely on their management abilities, diverse teams, and new payment technologies. This approach is simpler and more effective than other risk-coping strategies, guiding SMEs to make better decisions to maintain their FR without limiting alternatives.

The study on FR is not new, and research has yielded various definitions and conceptualizations. The literature offers different definitions of FR depending on the contexts (Nkundabanyanga et al., 2020). FR is defined as the ability of the SMEs to adapt, absorb, recover, and thrive from the shock (Hussain and Papastathopoulos, 2021). Some researchers have explained FR using situational factors, covering topics such as entrepreneurship, supply chains, and resilience factors during stress. These topics also explore biological, psychological, social and cultural influence (Asgary et al, 2020). Other areas of study include innovations and covid-19 (Dias, et al., 2022), organizational readiness and digital financial innovations (Hussain and Papastathopoulos, 2021), as well as financial crises (Nguyet, 2023). Additionally, researchers have examined financial education (Mahadi, 2023), Start-up readiness (Screenivasan and Suresh, 2023), income dependence, and organizational survival (Elizabeth Green et al., 2021. Most of these studies were conducted in Turkey, Portugal, UAE, England, Malaysia, UK, and China. For instance, Dias et al (2023) found that an SME’s network and risk-taking innovation and FR in Portugal. Hussain and Papastathopoulos (2021) discovered that firm size and bank lending negatively affect the FR of SMEs. Screenivasan and Suresh (2023) showed that digital financial innovations and liquidity impact FR. Mahadi (2023) study in Malysia found that support for financial literacy influences FR. In contrast, Nguyet (2023) found that access to bank loans does not explain SMEs’ FR in England. Hussain and Papastathopoulos (2021) used a mixed-method approach, revealing a strong influence of digital financial innovations and profitability on FR in the UAE.

Locally, few studies have examined the FR of SMEs in Uganda. Existing research has explored various topics, including firm traits and innovations, as well as how financial institutions survive (Nkundabanyanga et al., 2020). Some studies have investigated SME growth during Covid-19 pandemic and the financial challenges encountered (Nassuna et al., 2023). Others have looked into the role of social capital following the pandemic (Odoch et al., 2024). These studies have focused on the women-owned SMEs, micro-enterprises, and financial institutions (Nkundabanyanga et al., 2020; Nassuna et al., 2023; Odoch et al., 2024)

A recent meta-analysis study by Mahadi et al. (2023) and Khalil et al. (2022) examined how gender affects the FR of SMEs. Although scholars have reviewed studies globally, this study fills the gaps left by previous research. It investigates how poor management, gender diversity, and digital payments impact the FR of Uganda’s SMEs, an area previously overlooked by focusing on specific aspects. This study also responds to Odoch et al. (2024) and Nassuna et al. (2023) suggestions to explore FR in different contexts using both quantitative and qualitative methods. There are three key reasons for this: Firstly, SMEs outside Kampala operate in a different operating environment. Secondly, a firm’s FR changes over time. Thirdly, infrastructure differs from context to context.

This study identifies gaps in theory, methods, and data that affect our understanding of FR and the factors that improve it in SMEs. Firstly, the review by Saad et al (2021) reveals that many theories explain resilience, including crisis and disaster management, resource-based view, dynamic capabilities, sustainability, and system theories. These theories dominate organizational resilience research, with resource-based view theory mainly applied in supply chain resilience and rarely to SMEs’ FR (Saad et al, 2021). Organizational ecology theory has not been used to test SMEs’ FR (Nkundabanyanga et al., 2024). Moreover, existing studies have overlooked gender diversity and poor management as factors affecting SMEs’ FR. SMEs face many challenges, such as natural disasters, political unrest, economic crises, market access issues, institutional failures, and to infrastructure and technological problems. These challenges hinder their business recovery (Gianiodis et al., 2022; and Averina., et al., 2021). The limited research linking these challenges to SMEs’ FR makes it difficult to apply the findings in different contexts.

Secondly, meta-analysis reveals that gender diversity is crucial for SMEs, helping them to stay resilient during economic downturns (Bodjan, 2023). For instance, many low-income women and youth own SMEs, aiming to improve their livelihoods (FSDU, 2021). Previous research has examined corporate governance, board management and gender diversity (Bogdan, et al., 2023), but the results have been mixed (Alves, 2023; Nguyen et al., 2023). Digital payments have been shown to help SMEs to stay strong during the pandemic (Matloub and Avraam, 2022; Hussain, 2021; Khin & Ho, 2019). However, these studies focus on organizational and starts-up readiness, neglecting SMEs networks as a driver of FR. According to anecdotal evidence, only 3% of SMEs in associations achieve full recovery, 58% of SMEs are recovering; 35% are not viable, and 4% have lost hope for recovery (FSDU, 2021). Although many authors, such as Bayai et al. (2023), have studied FR from the perspective of financial institutions, entrepreneurial firms, and supply chain companies, few scholars have explored the impact of gender diversity and digital payments (Bogdan, et al., 2023). Entrepreneurs still struggle to obtain credit from suppliers due to low sales, liquidity issues, and defaults (Saad et al, 2021). Nearly half of the SMEs reported that their suppliers no longer provide stock on credit.

Thirdly, current studies used different methodological approaches. Some studies rely on qualitative methods, such as interviews (Nassuna et al., 2023), while others use quantitative approaches (Odoch et al., 2024). A few studies combine both methods (Atiase et al., 2022; Gianiodis et al., 2022). Because of these varying approaches, the studies by Alia et al. (2017), Atiase et al (2022), and Gianiodis et al (2022) found unclear results about how SMEs cope with challenges. Their findings are linked to global disruptions and Covid-19. These studies may not be applicable for the African and Ugandan contexts due to difference in methods and circumstances. In Uganda, about 60% of SMEs in selected cities see business failure as their main risk. Additionally, a quarter of them struggle to meet the quality standards, often due to high prices or supply shortages (FSDU, 2021).

This study addresses these gaps in three ways. First, it employs multiple theories to overcome the limitations of a single theory by utilizing the strength of others (Gianiodis et al, 2022). By combining organizational ecology, the resource-based view, and the diffusion of innovations theories, the study better achieves its goal. Organizational ecology explains how SMEs deal with management, social, and economic challenges, enabling them to remain resilient over the changing times (Baum and Amburgey, 2002). The diffusion of innovations theory shows how SMEs respond to technological changes, which ultimately influences their FR (Rogers, 2003). Second, limited research has been investigated the constructs that influence or restrict the FR of SMEs within a particular context (Gianiodis et al, 2022). This study of FR of SMEs is a complicated situation that needs further research from different angles (Nassuna et al., 2023). Therefore, this study proposes a method to understand the factors that explain the FR of SMEs using mixed-method based on multiple theories.

2.0 The Problem Statement of the Study

Small and medium sized enterprises (SMEs) play a vital role in Uganda, providing many jobs and driving economic activity in various countries (Kisubi et al., 2022). FR allows SMEs to overcome disruptions and shocks caused by limited resources (Yu, 2019; Saad et al., 2021). Despite government efforts to support them, SMEs in Uganda still suffer from financial difficulties. Initiatives such as SMEs Recovery fund, tariff cuts, and tax waivers have been implemented to help them (FSDU, 2022; Nshemereirwe, 2018; and Gwokyala and Okumu, 2023). However, SMEs limited access to credit hinders their FR (World Bank, 2024), leading to high mortality rates (Mugisha, 2021) and declining revenue (Sunday, 2021). This slim performance is largely attributed to factors such as low gender diversity, poor management, and issues with digital payments.

Previous studies have examined the business resilience from various angles. They explored entrepreneurs’ psychological resilience (Hartman et al., 2022); spiritual capital (Perez-Nordtvedt et al., 2022); and how firms’ strategic consistency affects resilience (Iborra, 2022). Additionally, they looked at personal resilience (Brito et al., 2022); entrepreneurs’ perceptions of technology and resilience (Smith et al., 2022); and organizational and technological resilience (Saad et al., 2021; Averina et al., 2021). However, these studies yielded mixed results about business resilience during the pandemic, can be attributed to the different methods used. Little is known about applying organizational ecology theory to assess the financial resilience of SMEs (Nkundabanyanga et al., 2024). For instance, a significant 53% of SMEs experience a decline in sales on credit, while 27% fail to repay their loans on time. Moreover, 13% are unable to repay their loans during the pandemic (FSDU, 2021). The recovery of SMEs from external shocks through sustainable activities remains limited (Saad et al, 2021; and Zutshi et al., 2021). Financial support is often criticized for neglecting the most vulnerable SMEs, which tend to have low resilience (Zutshi et al., 2021; Horváth & Szabó, 2019; Ali et al., 2017). Furthermore, the effectiveness of FR for SMEs in Uganda is not well understood. This is partly due to lack of focus on organizational ecology and diffusion of innovation theories, as well as gaps in research methods. Therefore, this study aims to investigates the FR of SMEs in Uganda.

3.0 Purpose of the study

The purpose of the study is to examine the relationship between management ineptness, gender diversity, digital payments, and financial resilience of SMEs in Uganda.

4.0 The objectives of the study

i) To investigate the relationship between management ineptness and FR of SMEs

ii) To determine the relationship between gender diversity and FR of SMEs

iii) To assess the relationship between digital payments and FR of SMEs

iv) To establish the relationship between management ineptness, gender diversity, digital payments, and FR of SMEs.

5.0 The Research Question

i) What is the relationship between management ineptness and FR of SMEs

ii) What is the relationship between gender diversity and FR of SMEs

iii) What is the relationship between digital payments and FR of SMEs

iv) What is the relationship between management ineptness, gender diversity, digital payments, and FR of SMEs.

6.0 Methodology

This study uses both qualitative and quantitative approaches and applies a cross-sectional survey. Inferential statistics and thematic analysis will also be used to capture events occurring during the study because it is a recommended approach to dig deep into SMEs’ secret operations of resilience (Bryman, 2014).

The study will design questionnaire survey instruments, focus group discussion and key informant interviews will be conducted. 1,200 SMEs operating in Gulu city northern Uganda, which captures the pre-Covid-19 and post-Covid-19 periods (Gulu Municipality Business Registration Department, 2022). This city has been chosen due to its location bordering South Sudan, which is affected by conflicts and droughts. Sample size of over 852 SMEs will be obtained. For this study, SMEs are the unit of analysis and SMEs owners and managers are the unit of inquiry.

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