Digital Financial Inclusion and SME Growth: Evidence from Bangladesh

Abstract

This study investigates the relationship between digital financial inclusion (DFI) and the growth of small and medium enterprises (SMEs) in Bangladesh. Using a cross-sectional survey of 387 SMEs across six administrative divisions, and employing Ordinary Least Squares (OLS), fixed-effects, instrumental variable (IV), and propensity score matching (PSM) estimations, the study constructs a composite DFI index encompassing mobile banking adoption, digital payment usage, and access to digital credit. Results consistently demonstrate that DFI exerts a statistically significant and positive effect on SME revenue growth, with digital credit access generating the largest marginal impact. Urban location, owner education, and firm size are identified as significant moderators. Heterogeneity analysis reveals that the growth dividend of DFI is especially pronounced among micro enterprises and rural SMEs, suggesting that digital finance can serve as an equalising instrument. The findings carry implications for Bangladesh Bank's regulatory framework, fintech ecosystem development, and targeted policy interventions aimed at broadening SME access to formal digital financial services.