Digital Banking Adoption and SME Financing Accessibility in Hyderabad, Sindh: Empirical Evidence from a Primary Survey

Abstract

Small and medium-sized enterprises (SMEs) are the back-bone of the Pakistan economy, but still, there are still financing gaps that limit their expansion potential especially in new areas like Hyderabad, Sindh. This research examines the effects of the introduction of digital banking on the accessibility of SME financing using a mixed-method quantitative research design. A structured questionnaire was used to gather primary data of 200 SMEs in six sectors in Hyderabad. To test six research hypotheses, descriptive statistics, independent samples t-tests, Pearson correlation analysis, logistic regression, ordinary least squares (OLS) regression, one-way analysis of variance (ANOVA), and Baron-Kenny mediation analysis were used. Findings indicate that the general adoption of digital banking is 65% with the services sector registering the highest (73.8%) and the lowest (45.5%) in the agriculture sector. The rate of loan approval was 72.3% among digital adopters and 47.1% among non-adopters ( t = 4.87, p < 0.001). According to logistic regression, the adoption of digital banking is the most predictive variable of loan approval (β = 1.423, OR = 4.149, p <.001). Digital banking variables explain 52.3% of the variation in the Financial Inclusion Index using OLS regression (R² =.523, F= 21.34, p <.001). Mediation analysis proves the existence of a partial mediation between credit score and digital adoption as well as loan approval (Sobel z = 4.23, p < .001). The implications of the findings are important to the policymakers, banking institutions, developers of fintech, and owners of SMEs in the underdeveloped areas in Pakistan.

Keywords: Digital banking, SME financing, financial inclusion, Pakistan, Hyderabad, fintech, access to loans, mobile banking