Evaluating the Nexus between Digital Transformation and Financial Inclusion: A Fresh Insight from Small and Medium Enterprises in Kenya

Abstract

Small and medium enterprises are considered vital in Kenya due to the significant role which they carry out towards the attainment of the big four agendas with respect to the country’s vision 2030. Despite this importance, these businesses continue to be financially excluded. Studies relating to digital transformation and financial inclusion are characterized by underlying research gaps cutting across conceptual, contextual to methodological gaps. As such, this study which originates from the Doctoral dissertation of the first author in which the co-authors served as supervisors sought to evaluate the nexus between digital transformation and financial inclusion of small and medium enterprises in Kenya. Diffusion Innovation Theory and Financial Intermediation Theory were utilized and explanatory research design was adopted. The top 100 small medium enterprises in Kenya constituted the target population and the sample size was 200 based on purposive sampling and simple random sampling techniques where two respondents were picked from each of the Small Medium Enterprises of interest. A response rate of 81.5 percent was achieved through the use of questionnaires. The study established a significant nexus between digital transformation and financial inclusion of small and medium enterprises in Kenya. Consequently, the study concluded that digital transformation is important in determining the financial inclusion of small and medium enterprises in Kenya. The study recommended that the management of small and medium enterprises should fully invest in digital transformation so as to maximize its underlying benefits of flexible financial services.