SUSTAINABLE FINANCE AND SME GREEN GROWTH UNDER STRUCTURAL CONSTRAINTS: THE ROLE OF FINANCIAL LITERACY IN A FRAGILE ECONOMY

Abstract

Access to sustainable finance is widely recognized as a key driver of environmentally sustainable investment and SME growth. However, its effectiveness remains underexplored in fragile and conflict-affected contexts, where structural constraints may shape how financial and managerial mechanisms operate. This study examines the relationship between sustainable finance and SME green growth, and the moderating role of financial literacy, using firm-level data from 363 Palestinian manufacturing SMEs analysed through PLS-SEM. The results show that access to sustainable finance has a significant positive effect on green growth, confirming its central role in supporting sustainable business outcomes. Financial literacy also has a positive direct effect, highlighting its importance in firm-level sustainability decisions, but it does not significantly moderate the relationship between financial access and green growth. These findings suggest that in structurally constrained environments, managerial capability may be limited by systemic barriers, reducing its ability to enhance the impact of financial resources. The study contributes to the business and economic transformation literature by showing that financial access remains the primary driver of SME green growth, while financial literacy plays a complementary rather than amplifying role