The Role of Digital Financial Services in Financial Inclusion Among Small-Scale Businesses

Abstract

Purpose: This study evaluates the impact of digital financial tools and services on financial inclusion for small-scale businesses, focusing on the Kozhikode district in Kerala, India. Financial inclusion is recognised as an enabler of economic growth and poverty reduction. Literature highlights that mobile banking, fintech, and digital payment platforms can transform access to finance for underserved firms. However, barriers such as low digital literacy, high transaction costs, and weak infrastructure often hinder the adoption of these innovations.
Methodology: Following a descriptive research design, a structured questionnaire was administered to 57 small-scale business owners across retail, agriculture, manufacturing, and service sectors. Descriptive and inferential statistics (percentage distributions, t-tests, and chi-square tests) were used to analyse the data.
Findings: The findings indicate that 73.7% of businesses held formal bank accounts (formal inclusion), while 26.3% remained excluded. Most (91.2%) reported using digital financial services regularly, with mobile banking apps as the most preferred platform. Common challenges included high transaction costs, poor internet connectivity, and limited digital literacy. Statistical tests found no significant differences in perceptions by gender, age, or education (p>0.05), suggesting similar experiences across demographic groups.
Implications: This study underscores the pivotal role of financial services, especially digital tools, in empowering small-scale businesses, particularly in underserved areas. Financial inclusion promotes economic stability, reduces poverty, and supports entrepreneurship by enhancing access to credit, savings, and insurance. The research highlights the need for inclusive policies and infrastructure to ensure effective adoption of digital finance, improve service delivery, and lower transaction costs. Practical insights can guide policymakers and financial institutions in fostering a supportive ecosystem that boosts small business growth and contributes to broader socioeconomic development.