Digital Financial Inclusion and Small-Medium Enterprise Growth in Emerging Asian Economies: A Comparative Study of Indonesia and India

Abstract

This study investigates the impact of digital financial inclusion on the growth of small and medium-sized enterprises (SMEs) in two of Asia's largest emerging economies, India and Indonesia, between 2019 and 2024. Drawing on a mixed-methods design that combines survey data from 450 SMEs (250 in India and 200 in Indonesia) with 30 semi-structured interviews of owner-managers, the research applies ordinary least squares regression, partial least squares structural equation modelling (PLS-SEM), and reflexive thematic analysis to evaluate the relationship between digital financial service (DFS) adoption and enterprise performance. Empirical findings indicate that DFS adoption is positively and statistically significantly associated with annual revenue growth (β = 0.342, p < 0.001) and employment expansion (β = 0.218, p < 0.01) after controlling for firm-level characteristics. Financial literacy partially mediates this relationship (indirect effect = 0.087, 95% CI [0.041, 0.139]), and the magnitude of the effect is consistently stronger in Indonesia than in India, particularly for micro-enterprises located outside metropolitan agglomerations. Qualitative analysis identifies four mechanisms through which digitalisation translates into competitive advantage: lowered transaction costs, expanded credit access through alternative data scoring, improved cash-flow visibility, and accelerated market reach via integrated e-commerce platforms. The study contributes to the literature on financial inclusion and entrepreneurship by offering one of the few cross-country comparisons of digital finance effects in South and Southeast Asia, and by foregrounding the contingent role of financial literacy and regulatory quality. The findings imply that policy makers should prioritise complementary investments in digital infrastructure, consumer protection frameworks, and SME-targeted financial education to maximise the inclusive growth dividends of digitalisation.