The Effect of Digital Financial Inclusion on MSME Performance in Palopo City: A Development Economics Approach

Abstract

Purpose: This study aims to investigate the effect of digital financial inclusion on the performance of Micro, Small, and Medium Enterprises (MSMEs) in Palopo City from a development economics perspective, focusing on access, usage, and quality of digital financial services.

Design/methodology/approach: A quantitative, cross-sectional survey was conducted using dummy data representing 150 MSMEs in Palopo City. MSME performance was measured through a composite index of revenue growth, productivity, and operational efficiency, while digital financial inclusion was operationalized as a composite index of access to, usage of, and perceived quality of digital financial services (mobile banking, digital wallets, QRIS-based payments). Multiple linear regression was employed, controlling for digital literacy, business duration, and business scale.

Findings: The results show that digital financial inclusion has a positive and statistically significant effect on MSME performance. Digital literacy, business duration, and business scale also exhibit positive and significant relationships with MSME performance. The model explains a high proportion of performance variance, indicating that digital financial inclusion functions as a key structural driver of MSME upgrading in Palopo.

Practical implications: The findings suggest the need for integrated policies that expand digital financial infrastructure, strengthen MSME digital literacy, and support business scaling to fully harness the benefits of digital financial inclusion for local economic development.

Originality/value: This study extends the financial inclusion–MSME performance nexus to a secondary-city context in Eastern Indonesia, using a multidimensional digital financial inclusion index and a development economics lens.

Paper type: Empirical research.