Digital Financial Inclusion, FinTech Adoption and SME Performance: Institutional Quality and Financial Deepening Effects in Pakistan

Abstract

This paper discusses the impact of digital financial inclusion (DFI) on the financial performance of small and medium-sized enterprises (SME) in Pakistan, in which the use of FinTech acts as an intermediate, and institutional quality functions as a moderator. The study was a three-wave and time-lagged survey of 372 registered SMEs by major sectors and provinces. Structural equation modeling Partial Least Squares Structural Equation Modeling (PLS-SEM), PLS 4 was used. DFI plays an important role in increasing the use of FinTech, which positively affects the financial performance of SMEs, which proves a strong mediation impact. The relationship between FinTech and performance is enhanced by the quality of institutions. This is the combination of the Resource-Based View and Institutional Theory in the study because it seeks to determine why the digital access is converted to the firm-level performance in an institutional setting. The policy of SME assistance must entail the combination of digital access and development of FinTech capabilities and regulatory efficiency.