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

Introduction

Digital inclusive finance as a catalyst for technological innovation in small and medium enterprises in pakistan. Explore how digital inclusive finance boosts technological innovation in Pakistan's SMEs. This study shows a significant positive impact, alleviating financial constraints and increasing innovation. Essential for policymakers.

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.

Review

This paper presents a timely and relevant investigation into the catalytic role of digital inclusive finance (DIF) in fostering technological innovation within Small and Medium Enterprises (SMEs) in Pakistan. The study's focus on a developing economy like Pakistan, where SMEs are crucial for economic growth but often face significant financial hurdles, makes its contribution particularly valuable. The abstract clearly articulates the central hypothesis: that digital financial inclusion positively influences technological innovation, primarily by alleviating monetary constraints. The finding that DIF significantly and positively affects innovation, and concurrently reduces financing constraints, aligns with broader research and underscores the potential of digital transformation in fostering a more dynamic entrepreneurial ecosystem. Methodologically, the study employs a quantitative, longitudinal approach, analyzing "property data" from 32 Pakistan Stock Exchange (PSX)-listed SMEs over the 2020-2024 period. This extended timeframe allows for a robust examination of changes in digital financial engagement and its resulting innovative outcomes. A key strength lies in its exploration of the mediating role played by monetary constraints, providing a nuanced understanding of the complex interaction between digital financial services and SME innovation. The specific quantification of a 0.452 percent increase in technological innovation for every 1 percent increase in digital financial inclusion offers a precise, empirical insight, bolstering the study's claims and providing actionable data for stakeholders. While the study offers significant insights, a potential area for consideration lies in the generalizability of its findings. The reliance on PSX-listed SMEs, while providing access to structured data, may not fully represent the vast and often informal landscape of the broader SME sector in Pakistan, which includes many smaller, unlisted enterprises. Future research could broaden the sample to include a more diverse range of SMEs to validate these findings across different scales and operational contexts. Nevertheless, the research successfully demonstrates that digital inclusive finance is a powerful tool for SMEs to overcome financing bottlenecks and enhance technological adoption, offering practical knowledge for policymakers and monetary institutions keen on fostering innovation and economic development in Pakistan.

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