Digital Inclusive Finance and SME Development
Qirun Qiu
a
School of Mathematical Sciences, Soochow University, Suzhou, 215000, China
Keywords: Digital Inclusive Finance, SMEs, Technological Innovation, Transformation and Upgrading.
Abstract: Due to cost and information asymmetry, traditional finance always ignores the development needs of middle
and small-sized enterprises (SMEs), which impedes their development. By comparison, digital financial
inclusion enhances the accessibility and convenience of financial services through digital technology.
Recently, under the background that aims to promote the integration between the digital and the real economy,
whether SMEs can use its development to achieve high-quality development is of great significance in the
modern economy. This paper focuses on digital inclusive finance has several benefits within SME
development, including improving the efficiency of SMEs' financial activities, facilitating SMEs'
transformation and upgrading, and promoting SEMs' scientific and technological innovation. But the
development of this kind of financial model is facing some impediments, such as financial risk, the excessive
scale of investment, and the difficulty of digital transformation. In the future, we need to find a balance
between risk control and service expansion to promote the development of SMEs better and accomplish
sustainable economic development.
1 INTRODUCTION
Under the traditional financial market, the financial
service target is mainly large enterprises, while
middle
and small-sized enterprises (SMEs)
are ignored. The
fundamental reason is that traditional finance requires
a lot of labor costs for company endorsements.
Secondly, because of problems such as the financial
system, imperfect corporate structure, and inadequate
information disclosure, financial institutions and
commercial banks have insufficient information
collection for SMEs, thus leading to unclear financial
risks. Therefore, the vast majority of financial
institutions and commercial banks feel powerless
when providing financial services for SMEs.In
addition, financial institutions pay little attention to
SMEs, which is partly attributed to various
uncontrollable factors in the market, making private
enterprises keep a distance from financial services, or
even blindly avoid them. Against this background, the
convenience of financial development has had little
impact on private enterprises, resulting in the majority
of SMEs' business models or borrowing scale being
in the old era or the old mode. At present, as private
enterprise is China's main economic support, this
a
https://orcid.org/0009-0004-4349-0510
situation will hinder economic development to some
extent. Therefore, promoting the growth of inclusive
digital finance is crucial.
The continuous progress of digital technology has
brought new possibilities to the financial industry.
The concept and practice of digital inclusive finance
have been produced by the constant growth of fintech
and other related fields. Digital inclusive finance aims
to establish a data-driven risk control system by
leveraging digital technologies. This approach not
only expands financial inclusion but also strengthens
its impact on entrepreneurship, income growth, and
income distribution, while enhancing the accessibility
and convenience of financial services. Additionally,
digital inclusive finance promotes information
sharing, which decreases the expenses associated with
financial transactions, aids high-quality SMEs in
securing appropriate financing, and helps business
leaders formulate sound investment strategies.
Consequently, the sustainable development of
modern China's economy is largely influenced by
digital inclusive finance.
Currently, studies of digital inclusive finance and
its impact on enterprise development have garnered
significant attention from scholars, with a focus on
128
Qiu, Q.
Digital Inclusive Finance and SME Development.
DOI: 10.5220/0013207900004568
In Proceedings of the 1st International Conference on E-commerce and Artificial Intelligence (ECAI 2024), pages 128-133
ISBN: 978-989-758-726-9
Copyright © 2025 by Paper published under CC license (CC BY-NC-ND 4.0)
how it influences efficient investment and alleviates
economic financing challenges. For instance, Teng
and colleagues have emphasized that digital inclusive
finance promotes the efficient growth of financial
activities among SMEs, a point that has been
thoroughly summarized and reviewed in existing
literature (Teng, 2020). In addition, Zhang and other
researchers have highlighted the positive role in
enhancing the technological innovation capacity of
SMEs (Zhang, 2023). Li and his team have explored
how digital inclusive finance contributes to the
transformation and upgrading of enterprises (Li,
2023). So far, Many existing related research results
and literature can enhance our understanding.
However, there remains a lack of consensus among
scholars on key issues such as its concepts, causes,
and consequences. This divergence stems from
differences in theoretical perspectives, research
contexts, and the timeliness of the studies, leaving
some general issues unresolved.
Most of the existing studies on the impact of digital
financial finance on SMEs focus on a specific aspect
and lack a comprehensive literature review. Besides,
the development time of this field is relatively short,
and the relevant research is still not systematic enough.
To address these issues, this paper aims to offer a
thorough summary of the current literature on how
inclusive digital finance influences SMEs. By
identifying existing research gaps and outlining future
prospects, the paper seeks to guide and support
scholars in advancing their studies and developing a
more cohesive understanding of this evolving area.
2 THE IMPACT OF DIGITAL
INCLUSIVE FINANCING ON
SMES
Many scholars have investigated the influence of
digital inclusive financing on SMEs, particularly in
terms of financing, risk management, market
expansion, and technological innovation. This paper
will discuss three aspects of corporate financial
activities, technological innovation, transformation,
and upgrading development of digital inclusive
finance.
2.1 The Impact of Digital Financial
Inclusion on Corporate Financial
Activities
As for the impact of digital inclusive finance on
corporate financial activities, this paper mainly
discusses two aspects improving investment
efficiency and alleviating financing constraints.
Digital inclusive finance helps SMEs make effective
investments in digital technology, significantly
enhances the availability of finance to SMEs, and in
turn fuels business development.
2.1.1 Digital Finance Promotes the
Investment Efficiency of SMEs
Digital finance helps SMEs allocate funds reasonably
to some extent, thereby improving enterprise
investment efficiency. According to relevant
literature, Peng et al.concluded that its development
is significant in improving the investment efficiency
of enterprises, whether for enterprises with excessive
or underinvestment. The reasons behind this may be
multiple. First, the digital economy facilitates the
digital transformation of enterprises to realize
automation and intelligence faster, reduce transaction
costs, improve operational efficiency, and thus
improve investment performance. Second, Its
development provides management with more
diverse and real-time information, which reduces the
uncertainty and risk in the investment. This helps
enterprises make more accurate and objective
investment decisions, avoid inefficient investment
behavior caused by opportunistic motivation, and thus
significantly enhance the investment efficiency of
enterprises (Peng, 2022). In addition, from the
perspective of corporate financing, Li Liang et al.
found that digital finance can help SMEs find and
choose the appropriate volume of financing
investment strategies, to make effective investments
and increase the return on corporate financial
activities (Li, 2024).
2.1.2 Mechanisms for Digital Financial
Inclusion to Alleviate Financing
Constraints
In the traditional economy, insufficient information
collection about SMEs leads to reduced trust in
commercial banks, impeding corporate finance.
Digital inclusive finance has emerged as a significant
solution to this challenge, as noted by Teng. This
modern approach alleviates the financing constraints
faced by SMEs through two primary mechanisms.
First, the risk mechanism enables digital financial
platforms to assess the financial risks of SMEs with
greater precision using big data and artificial
intelligence technologies. Second, the credit
mechanism allows SMEs to establish and accumulate
their own credit assets in the credit market formed by
digital technologies, thereby improving their
Digital Inclusive Finance and SME Development
129
trustworthiness with commercial banks (Bu, 2024).
Moreover, its impact on reducing SMEs' financing
constraints is not uniform but rather exhibits
heterogeneous characteristics. Digital financial
platforms correct mismatches in attributes, domains,
and regions within conventional financial lending
services, allowing SMEs to secure loans more quickly
and accurately, which in turn enhances the
availability of enterprise financing (Bu, 2024).
Second, digital technologies have created credit
markets that enable SMEs to build and accumulate
credit assets, making it easier for them to raise finance.
Research by Lu et al., which analyzed panel data on
Chinese SMEs from 2007 to 2017, underscores that
digital finance represents a transformative shift in the
lending environment, yielding substantial benefits for
businesses (Lu, 2022). Digital trading platforms, for
instance, simplify the loan application and approval
processes for enterprises. Furthermore, in a digital
inclusive financial environment, regional challenges
between banks and SMEs can be effectively
addressed, significantly reducing information
asymmetry and lowering the operational costs for
banks. This presents enterprises with the chance to
acquire more targeted financial products and services.
Therefore, Digital inclusive finance provides a
beneficial and major impact in decreasing SMEs'
financing constraints, therefore improving the
availability of financing for SMEs. These findings
align with the conclusions of Chauvet and Jacolin that
financial inclusion can enable SMEs to break through
the financing gap and that SMEs may have
greater chances to obtain financial support in a more
inclusive financial environment (Chauvet, 2017).
Financial institutions utilize digital technology to
accurately assess enterprises' financial situation,
operational capacity, and credit level so that financial
resources can flow more efficiently to enterprises
with development potential and investment value. It
promotes the rational flow of funds between different
enterprises and projects, improves the efficiency of
capital utilization, and avoids idle or wasted funds.
2.2 The Role of Digital Inclusive
Finance on Enterprise
Technological Innovation
SMEs have a simple organizational structure and a
flexible mode of operation, so they are more
adaptable and sensitive to the changing market. In the
present competitive market, the small scale of SMEs
leads them to be easily abandoned and eliminated by
the market. Therefore, this encourages SMEs to
generate new ideas and thoughts on the current
technology to gain a foothold in the competitive
market with less cost. According to China's relevant
patent survey report, SMEs completed more than 60%
of the patents, which shows that promoting
technological innovation in SMEs has become an
immediate priority. Secondly, some studies show that
Chinese enterprises' patent exports account for a
relatively low percentage, the competitiveness of
domestic enterprises' patents in the international arena
is on the low side, and at present, SMEs' patented
technologies are imported more but exported less.
This report shows that the current domestic scientific
and technological innovation environment is severe,
and the "gold content" of domestic enterprises' "going
out" patents still needs to be improved. The
significance of promoting the technological
development of SMEs is further highlighted.
According to relevant data, the lack of capital is one
of the main difficulties and obstacles for SMEs to
innovate in science and technology.
Hansen and Birkinshaw's research paper proposes
the innovation value chain as a new staged framework
for assessing innovation performance (Hansen, 2007).
Developing a new patent consists of three main stages:
idea generation, idea transformation, and idea
dissemination. The study by Qi Hongqian et al. goes
into more detail about the shortcomings as well as
drawbacks of SMEs in the innovation chain. The
weakness of SMEs in the two levels of creative
transformation and creative dissemination has led to
different degrees of interruptions and resource
mismatches in the implementation of the innovation
value chain by Chinese SMEs, which has resulted in
the uneven quality of China's innovative products and
even their indiscriminate use (Qi, 2023). For SMEs,
innovation was a necessary factor for their sustainable
development.
In this context, introducing scientific and
technological talent and adequate funding are key
factors, and digital inclusive finance is crucial in this
regard. The growth of digital financial inclusion has
increased the availability of financial support for
SMEs. Its online advantages enable financial
institutions to have rich collection capabilities. It
means that the geographic barriers of traditional
finance are broken down by digital financial
inclusion, which will bring the marginal cost of
financial institutions as well as commercial banks
close to zero. With low survey costs, commercial
banks can reach out more to SMEs to learn more
about more creative and valuable technology ideas
and dispel the crisis of confidence.
In addition, there may be financial exclusion”
by traditional financial institutions as well as
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commercial banks and a hot outside, cold inside
phenomenon of financial inclusion (Song, 2023),
which leads to inefficiencies in lending and
borrowing. Digital inclusive finance well relieve this
phenomenon as well as make corporate technology
financing more efficient. As most of the science and
technology innovations are time-sensitive, Expired
projects lead to the waste of capital and time cost of
the enterprise and even bankruptcy. This financial
model can improve the efficiency of corporate finance
by constructing a streamlined loan approval process,
which enables fast approval of SME-financed loans
and a nearly 20% increase in approval speed (Song,
2023).
Moreover, under the traditional economic model,
commercial banks may encounter challenges in
comprehending the operating conditions of SMEs due
to the lack of information collection, financial
strength, and solvency, thus reducing trust in them
and making them more cautious in providing financial
services, or even refusing to provide them. This
ultimately makes it difficult for SMEs to access
external financing and hinders technological
innovation. However, the financial inclusiveness
contributes to providing diversified financial services
to those who the traditional financial system cannot
cover. It can accurately assess the risk profile of
enterprises, customize financial services according to
their risk characteristics, encourage technological
innovation, and assist in the planning and
management of innovative projects.
2.3 Impacts of Digital Financial
Inclusion on Business
Transformation and Upgrading
First of all, since SMEs are the main source of the
country's major economic output, it is important to
actively promote the new development of SMEs,
which is an inevitable trend for China to move
towards its second hundred-year goal. For the
transformation and upgrading of SMEs, the study of
Li et al. explains its definition in detail, that is,
transformation mainly refers to enterprise
transformation between different industries and
development models, and upgrading refers to
continuous improvement of firms in the industrial
chain and value chain through innovation and
integration (Li, 2023).
Due to the fierce market competition, SMEs are
generally eager to form a strategic cooperation system
with a complete supply chain by looking for partners.
The supply chain is centered on the core enterprise,
which is usually a listed company or a large
enterprise, while ordinary SMEs are usually dealers
downstream of the supply chain. Because first-tier
suppliers generally hold the lifeblood of the core
enterprise, Suppliers directly connected to the core
enterprise are first-tier suppliers, and generally first-
tier suppliers are better-developed SMEs, while other
common SMEs mostly serve first-tier suppliers.
Theoretically, this will allow companies in the supply
chain to grow better and cope better with the storms
and turbulence of the market. However, the imbalance
between core firms and firms at the two ends of the
supply chain puts SMEs at both ends of the chain in a
more constrained position when negotiating with core
firms. Among them, some core enterprises in the
supply chain credit sales to upstream SMEs, so that
they can only use most of the business funds to pay
for the working capital and inventory related to the
core enterprises in the supply chain. Downstream
SMEs adopt the receipt and payment method of cash
settlement or collection in advance leaving most
fluid funds occupied and thus can only reduce the
amount and frequency of their purchase of raw
materials. Additionally, due to upstream credit sales,
first-tier suppliers cannot get funds quickly and
deliver them to lower-tier suppliers, making their
credit assessment impaired and financing difficulties
worse. Downstream, given that the core enterprise
requires downstream sellers to collect payment
immediately when dealing with retailers or
downstream customers, may trigger doubts about the
trust of customers or next-tier partners, damaging the
enterprise's credibility.
In this case, the role of digital financial inclusion
is demonstrated. Digital financial inclusion allows
SMEs to have sufficient liquidity so that some
potential SMEs will not lose their credibility due to
the biased treatment and unfair delivery methods in
the supply chain, which in turn improves financing
and operational difficulties. Digital financial
inclusion enhances the imbalanced position of SMEs
in the supply chain by reducing their business risk and
instability. In the future, more investors will also
increase their trust in SMEs based on their transaction
records with core enterprises in the supply chain,
rather than determining the strength of an enterprise
through its short-term operations. This will help more
promising enterprises to try other fields or develop
new technologies with sufficient capital.
Digital Inclusive Finance and SME Development
131
3 BARRIERS TO THE
DEVELOPMENT OF DIGITAL
FINANCIAL INCLUSION
Current research on impediments to the development
of digital financial inclusion finds that these
impediments involve a variety of aspects such as
infrastructure, data privacy, regulatory policy, market
acceptance, financial education, and economic and
social factors. This paper will explore three
impediments in terms of financial risk, investment
scale, and digital transformation.
3.1 Financial Risk (FR)
The improvement of financial security makes the
growth of digital financial inclusion initially rise
slowly and tend to a stable state, but when financial
security is improved to a certain extent, its positive
impact is rapidly diminishing and even transformed
into an inhibitory effect (Liu, 2023). Financial risks
and benefits coexist, it follows that on the one hand,
if too much emphasis is placed on the rapid
development of digital financial inclusion, there may
be a lapse in risk management. On the other hand,
while an excessive focus on financial risk control can
reduce the likelihood of risk, it also limits the
popularization and diffusion of its financial services.
This is shown in the existence of a reverse inhibitory
link between the development of digital inclusive
finance and financial hazards to some extent. High
financial security is also a hindering factor. Strict risk
controls lead to high service thresholds and overly
burdensome review processes. To achieve excessive
security, financial institutions often need to invest
significant resources in technology development, risk
monitoring, and compliance management. These cost
increases may be passed on to customers, leading to
higher prices for digitally inclusive financial services,
which in turn affects social stability. As a result, too
much financial security without finding the right
balance between risk control and service expansion
may dampen the development of digital financial
inclusion.
3.2 Investment Scale (IS)
The increase in the scale of investment causes an
initial rise in the growth of digital inclusion, but whit
the scale continues to grow, more investment presents
a significant disincentive to digital inclusion
development (Liu, 2023). More investment can
support digital financial inclusion platforms to
expand their business, promote science and
technology, improve service efficiency, and help
build a strong risk prevention and control system.
However, when the scale of investment is too large,
financial institutions may take excessive risks and
neglect risk control in pursuit of high returns. The
positive impact of increasing the scale of investment
diminishes when market saturation is high. In times
of economic instability, over-investment can increase
its negative impacts, such as increased investment
risk, reduced output efficiency, over-allocation of
resources, and waste. In addition, high investment
also implies huge cost outlays, so financial
institutions may raise service fees to cover costs,
reducing the inclusiveness of digital inclusive finance
and hindering the balance of society. Meanwhile, the
influx of investment may trigger excessive
competition and lead to market disorder. Further,
over-investment may also give rise to industry
bubbles, the bursting of which can hit the industry and
seriously affect sustainable economic development.
Therefore, appropriate investment will reduce the cost
pressure on the development of digital inclusive
finance, promote the development of technological
innovation, and promote economic development.
3.3 Difficulties in Digital
Transformation
The integration of digital technologies into all aspects
of an organization is referred to as digital
transformation, which drastically alters how it
operates and provides value to its customers. Digital
inclusive finance has a significant indirect facilitating
effect on the high-quality development of SMEs by
enabling digital transformation (Liu, 2023). Digital
transformation can help financial institutions better
serve SMEs, and improve the efficiency and quality
of financial services. However, some traditional
financial institutions have shortcomings in
technology research, talent pools, and organizational
structures, so enterprises may face challenges in
different areas that make it difficult to achieve rapid
digital transformation. Moreover, enterprises need to
invest sufficient resources and technology and
readjust the traditional organizational structure of the
enterprise, which requires decision-making and
resource allocation by top management, as well as the
active cooperation and adaptability of employees.
These obstacles impede enterprise digital
transformation and hence have an impact on the
development of digital financial inclusion.
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4 CONCLUSIONS
In this paper, we summarize and elaborate on various
studies about the impact of digital financial inclusion
in SMEs and the existing obstacles in previous years.
For the impacts, we summarize three main aspects.
First, digital financial inclusion provides businesses
with easier access to financial services through lower
financial costs in order to help them invest efficiently.
The new mode of investigation and lending can
improve enterprise financing efficiency and alleviate
the shortage of funds for high-quality SMEs. Ease the
financial difficulties of SMEs through efficient
financial activities. Secondly, SMEs, as the mainstay
of patent innovation in China, should make efforts as
soon as possible to solve the obstacles encountered by
SMEs in science and technology innovation. Through
geographically disruptive online services, efficient
lending models, and a widened information network,
people can break down the barriers to science,
technology, and innovation in SMEs. Third, this
financial model can mitigate the imbalanced
negotiation position of SMEs in the upstream and
downstream of the supply chain by providing them
with appropriate funds, ensuring that their credibility
is not damaged by factors other than their own, and
promoting the sustainable development of SMEs.
In addition, this paper provides a summary of the
current impediments to digital financial inclusion.
First, people should strive to strike a balance between
risk and service expansion when developing digital
inclusive finance, as well as to ensure that the
development is benign, constructive, and beneficial to
the public. Secondly, enterprises should control the
quality of investment in digital inclusive finance to
prevent excessive hype and follow-through, leading
to capital bubbles and wasted resources. Finally,
companies should actively promote digital
transformation and utilize new management
structures to ensure that digital financial inclusion can
be carried out efficiently.
The main research direction of current scholars
focuses on the theoretical analysis of the impact of
digital inclusive finance on SMEs, and the empirical
analysis is still relatively rare. Based on this it is
necessary to expand from the following aspects.
Firstly, it is hoped that future literature will collect
data information on SMEs in different aspects.
Secondly, because too much theoretical research
makes the implementation of digital inclusive finance
stay on the surface, scholars should pay more
attention to the research on the implementation in the
future.
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