Impact of Digital Adoption and Digital Financial Literacy on MSME Growth with Financial Inclusion as a Mediating Variable

This study aims to analyze the influence of digital adoption and digital financial literacy on the growth of MSMEs by including financial inclusion as a mediating variable in MSMEs in NTB Province. Data were collected through a questionnaire survey and processed using the Structural Equation Modeling–Partial Least Squares (SEM-PLS) approach, with the evaluation stages of the measurement model (convergent validity and internal reliability) and structural model (hypothesis test and R-Square value). The results of the analysis showed that the entire construct met the criteria of validity and reliability, while the R-Square value for financial inclusion and MSME growth was above 0.70, indicating a strong model explainability. Substantively, digital adoption and digital financial literacy have a positive and significant effect on financial inclusion, and financial inclusion has a positive and significant effect on the growth of MSMEs. However, the direct influence of digital adoption and digital financial literacy on the growth of MSMEs is positive but not significant. In contrast, financial inclusion has been shown to significantly mediate the relationship between digital adoption and MSME growth, as well as between digital financial literacy and MSME growth. These findings conclude that digital transformation and the increase in financial literacy only have a real impact on the growth of MSMEs when followed by the active use of formal financial services, so the implication is that policies to strengthen MSMEs need to simultaneously encourage digitalization, financial education, and the expansion of financial inclusion.