Investigating Digital Financial Literacy and its Impact on SMEs’ Performance: Evidence From Indonesia

Abstract

Purpose: This study aims to measure the impact of digital resources and digital adoption on Indonesian SMEs’ digital financial literacy. Subsequently, the impact of digital financial literacy on financial performance is also tested. This study employs quantitative approach.   Theoretical Framework: Although previous studies about financial literacy in the Indonesian context has been carried out a lot, but the majority is related to individual/personal and household financial decision-making little research has linked financial literacy with decision-making in SMEs. Research on financial literacy in the Indonesian context has also been carried out which is linked to the latest trends in digitalization, but this research focuses more on one issue, namely financial technology (fintech)   Design/Methodology/Approach: A causal study is used to examine the causal relationship between related variables by conducting hypothesis testing. A quantitative approach by distributing questionnaires directly to respondents is used as the primary data.  In this study, SPSS Version 28 was used for data screening and profiling of respondent SMEs. Partial Least Square-Structural Equation Modelling (PLS-SEM) with the Smart-PLS 3 software, including measurement and structural models testing, was used to test the proposed hypothesis.   Findings: This study reveals that SMEs which possess better digital resources has no impact on proficiency of digital financial literacy. Meanwhile, the SMEs which have better in digital adoption have better in term of digital financial literacy. As expected, the digital financial literacy has positive and significant impact on financial performance.   Research, Practical & Social Implications: This study offers valuable insights from a managerial perspective that are applicable. Accordingly, the managers of SMEs should focus on selecting the appropriate digital portfolio to optimize their degree of digital financial literacy, since this study has demonstrated that digital adoption raises digital financial literacy.   Originality/Value: This study adds to the body of knowledge regarding contemporary issues pertaining to digital financial literacy. The study's key result is that SMEs who use digital technologies typically have higher levels of digital financial literacy. This has an additional benefit in that these SMEs typically do better financially.