This study investigates the relationship between financial literacy and business performance among ultra micro, micro, small, and medium enterprises (UMSMEs). Analyzing survey data from nearly 10,000 UMSMEs across 34 provinces in Indonesia, we find that financial literacy is positively and significantly associated with higher sales, profitability, and productivity. We identify innovation, the adoption of advanced information and communications technology and digital technologies, and access to bank loans as the key mechanisms explaining these improvements. We also demonstrate that the positive association is stronger for ultra-micro firms, women entrepreneurs, informal businesses, and enterprises outside the Java-Bali region. These findings underscore the critical role of financial literacy in fostering UMSME growth and highlight the need for targeted financial education initiatives to unlock the potential of diverse entrepreneurial segments.

Suggested Citation:

Ridhwan, M.M., Suryahadi, A., Inggrid et al. Financial literacy and business performance: evidence from Indonesia’s ultra-micro, micro, small, and medium enterprises. J. Ind. Bus. Econ. (2026). https://doi.org/10.1007/s40812-026-00406-2