Supremacy of Digital Lending on Financial Inclusion of Small and Medium Sized Enterprises in Meru County, Kenya

Abstract

This study addresses the enthusiasm for digital solutions to challenges of financial inclusion and has explored the sway that digital lending has on financial inclusion among Small and Medium sized Enterprises in Kenya. The main purpose of this study was to establish the supremacy of digital lending on financial inclusion of Small and Medium sized Enterprises in Meru County, Kenya. The specific objectives of this study were: to determine the influence of mobile money lending on financial inclusion of Small and Medium sized Enterprises in Meru County, Kenya; to determine the influence of online lending on financial inclusion of Small and Medium sized Enterprises in Meru County, Kenya and to determine the influence of supply chain lending on financial inclusion of Small and Medium sized Enterprises in Meru County, Kenya. To achieve this, the study employed a descriptive research design. The data was collected using questionnaires. The data was collected from selected small and medium sized enterprises in Meru County. The target population of the study was 4691 and the sample size of 121 respondents was selected using stratified sampling. The collected data was checked for errors, verified, and coded for analysis. The data was analyzed using descriptive statistics and this was done using a statistical package for analysis (SPSS) version 28. Findings from the study indicate that mobile money lending has a negative influence on financial inclusion of SMEs with a regression coefficient of -0.056. This implies that an increase in the access of mobile money usage leads to a decrease in financial inclusion by 0.056. This relationship is not significant since the p-value is more than 0.05. The findings indicate that online lending has a positive effect on financial inclusion as shown by coefficient 0.400, which implies that increase in one unit of online lending leads to an increase in financial inclusion by 0.400 units. This relationship is significant since the p-value is less than 0.05. The results indicate that financial inclusion is negatively influenced by supply chain lending as shown by coefficient -0.085. This relationship is not significant since the p-value is more than 0.05. Mobile money lending, online lending and supply chain lending were found to be statistically significant with positive impact on supremacy of digital lending on financial inclusion of Small and Medium sized Enterprises. Following the results of the study, a positive relationship exists between mobile lending, online lending, and supply chain lending and financial inclusion of Small and Medium Sized Enterprises. The study recommends that it is imperative that that SMEs begin to view mobile money lending as of strategic importance to their businesses. This is because mobile money is at the intersection of finance and telecommunications with different actors as stakeholders with increasingly new entrants offering a diverse product offering that could propel the growth of SMEs. The study further recommends that studies be carried out on how supply chain lending can catalyze the SME sector through innovative offerings to bridge the gap of access to capital including educating SMEs on different supply chain lending products and how they can be leveraged towards growth of their businesses. The study recommends that studies be carried out on the extent to which online lending might lead in digital financial exclusion due to lack of capacity by particular segments of the population to adopt fintech such as marginalized groups, women, SMEs that operate in small towns or rural areas and also the biases in algorithmic scoring. The study recommends that further studies be conducted on larger segments of businesses, and an expanded geographical scope, for instance, multiple counties and the East Africa region. Additionally, it is recommended that a regulatory framework be put in place to ensure that users of digital lending platforms are protected from predatory lending practices while safeguarding the strides that have been made towards financial inclusion. This is because financial inclusion is not just about expanding access to accounts but also ensuring that the services that are used by people are safe, secure, transparent in addition to adding value to their lives. Digital lending works within a host of supporting businesses such as agency networks and in order to safeguard the gains of financial inclusion, the offerings must be sustainable hence the need for a regulatory framework that ensures a competitive environment for the players involved.