Digital Inclusive Finance as a Catalyst for Technological Innovation in Small and Medium Enterprises in Pakistan

Abstract

This paper looks into how digital inclusive finance influences technological innovation among small and medium sized enterprises in Pakistan (SMEs). Using a quantitative method, the study employs property data of 32 SMEs, listed at the Pakistan Stock Exchange in 2020-2024. The proposed longitudinal study will provide a chance to compare the changes in the digital financial engagement, and the result of innovation with the course of time. In addition to investigating the mediating role played by the monetary constraints, the key goal is ensuring there is a complex interaction between the technical innovativeness by the SMEs and digital financial services. It has been established that digital inclusive financing can significantly and positively affect technological innovation. Financial inclusion in digital form is also discovered to be fit under lesser financing constraints within firms. The restriction in the provision of funds, in its turn, has adverse and significant influence on innovation. The study revealed that technological innovation increases marginally by about 0.452 percent per 1 percent of increase in digital financial inclusion. Having matched the effects of digital financial inclusion to a funding constraint, it continued to have a significant impact on innovation (with possible linear and non-linear effects (via alleviation of constraints)). These results are similar to other research studies regarding the importance of having gone past the financing bottlenecks in an attempt to reach more innovation and shows that SMEs can employ digital inclusive finance to find a way to curb their financing bottleneck and make their technology more popular. The results are expected to contribute to further knowledge on the Pakistani SME sector and give practical knowledge to policy makers and monetary institutions.