In　the　current　turbulent　market,　firms　spend　lots　of　tangible　and　intangible　resources　to　gain　competitive　advantage　and　superior　performance.　Prior　studies　have　discussed　several　determinants　of　competitive　advantage　and　performance,　particularly　in　developed　economies,　whereas　small-　and　medium-sized　enterprises　(SMEs)　in　emerging　economies　have　received　minor　attention.　This　study　examines　the　mediating　role　of　competitive　advantage　between　enterprise　risk　management　practices　and　SME　performance　and　the　moderating　role　of　financial　literacy　between　enterprise　risk　management　practices　and　competitive　advantage.　A　structured　questionnaire　is　used　to　collect　data　from　304　SMEs　operating　in　the　emerging　market　of　Pakistan.　The　hypotheses　of　the　proposed　study　are　tested　through　Structural　Equation　Modeling　(SEM)　in　Analysis　of　a　Moment　Structures　(AMOS).　The　results　indicate　that　enterprise　risk　management　practices　significantly　influence　competitive　advantage　and　SME　performance.　Competitive　advantage　partially　mediates　the　relationship　between　enterprise　risk　management　practices　and　SME　performance.　Additionally,　financial　literacy　significantly　moderates　the　relationship　between　enterprise　risk　management　practices　and　competitive　advantage.　Firms　are　advised　to　implement　formal　enterprise　risk　management　practices　to　gain　competitive　advantage　and　superior　performance.　Top　managers　need　to　have　enough　financial　education　that　they　will　be　able　to　perform　risk　management　practices　in　an　efficient　way　to　gain　a　competitive　position　in　the　market.　Implications　for　practices　have　been　discussed　in　detail.