Impact of Financial Inclusion on SME Growth

Abstract

Financial inclusion (FI) is perceived as an imperative tool for reducing poverty and stimulating economic growth. In particular, FI provides access to capital and financial services to small and medium-sized enterprises (SMEs) and enables them to manage their finances, mitigate risks, expand operations, facilitate innovation, and drive job creation. SMEs are considered the backbone of an economy regardless of the level of development of that economy. However, their potential is not fully tapped yet and is hindered due to several constraints. Among its constraints, the unavailability of financial resources is considered a major barrier to SME growth. The International Finance Corporation (IFC) evidenced that 40% of formal SMEs in emerging economies suffer from unmet yearly financial needs of USD 5.2 trillion. Despite all the advantages of FI, it is argued that FI is contingent upon various factors such as structural and policy-related factors and cannot be achieved in isolation. The effectiveness of FI requires collective effort. On the other hand, information and communication technology (ICT) is considered a key enabler of FI. The existing literature has been debated the relationship between FI and SME growth; nonetheless, a lack of consensus exists for the role of FI in SMEs' performance and/or growth. It is also evidenced that the level of FI varies among countries as well as within a country. Therefore, this chapter reviews the academic literature on FI in SMEs by employing bibliometric analysis methods. A total of 62 publications related to FI in SMEs between 2206 and 2024 were identified from a widely recognised Scopus online database. Using VOSviewer software, the analysis established how research has evolved in this area. The authors identified main current themes, emerging trends, and gaps for future research directions.