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Unlocking Financial Opportunities: The Substantial Alleviation of Financing Constraints on Small and Micro Enterprises Through Digital Inclusive Finance

Author

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  • Lei Jin

    (University of Malaya)

  • Mingyang Liu

    (Henan Agricultural University)

Abstract

In today’s economic landscape, the challenges faced by small and micro enterprises (SMEs) in securing finance have significant implications for their growth and expansion prospects. The emergence of digital financial inclusion has introduced a transformative framework to address this critical issue, offering new avenues for SMEs to access capital. This paper explores the dynamic relationship between digital financial inclusion and the funding constraints encountered by SMEs. Governments, recognizing the importance of SME expansion, have actively promoted regulations to incentivize financial institutions to adopt innovative service models and directly support SMEs. This paper delves into the multifaceted landscape of policy dynamics and its impact on SMEs, underscoring their pivotal role in the broader economic fabric. Recent developments in digital financial inclusion have combined technological innovation and deliberate policy measures. Incorporating artificial intelligence and machine learning algorithms has significantly enhanced the accuracy of financial services, enabling tailored solutions for SMEs. The widespread adoption of mobile banking apps and digital payment platforms has expanded financial access, especially in historically underserved areas. Blockchain technology has introduced transparency and security to financial transactions. While existing research has highlighted the potential benefits of digital financial inclusion for SMEs, there remains a need for a comprehensive empirical understanding of the intricate relationship between these initiatives and the specific funding challenges faced by SMEs. This paper addresses this gap by conducting a thorough empirical analysis, shedding light on unexplored aspects, and providing valuable insights for policymakers and financial institutions. Our study’s objectives are multifaceted. We aim to assess the impact of digital financial inclusion on SME funding constraints through a comprehensive empirical study. By examining pilot projects in specific geographic areas, we seek to uncover nuanced observations and disparities. Furthermore, our research enriches the theoretical framework by exploring the complex interplay between digital financial inclusion and SME financial viability. The findings reveal that while digital financial inclusion has the potential to alleviate funding constraints for SMEs, it faces challenges related to technical assistance, information disparities, and limitations in the magnitude and duration of funding. This complexity underscores the need for a nuanced approach to policy development and intervention, considering socio-economic factors and demographic variations. This study contributes to the evolving landscape of digital financial inclusion and its impact on SME finance. It provides valuable insights for SME managers and policymakers, emphasizing the importance of closing information gaps and offering a range of financing options. Ultimately, it calls for a strategic equilibrium between immediate and long-term funding choices to cater to diverse SME growth trajectories. This research aims to facilitate informed decision-making and promote a more inclusive and resilient economic environment for SMEs.

Suggested Citation

  • Lei Jin & Mingyang Liu, 2025. "Unlocking Financial Opportunities: The Substantial Alleviation of Financing Constraints on Small and Micro Enterprises Through Digital Inclusive Finance," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 16(1), pages 2283-2309, March.
    • Handle: RePEc:spr:jknowl:v:16:y:2025:i:1:d:10.1007_s13132-024-01863-7
    DOI: 10.1007/s13132-024-01863-7
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    References listed on IDEAS

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