Digital Finance and Profitability of Small and Medium Enterprises in Siaya County, Kenya

Small and medium-sized enterprises (SMEs) are vital in creating jobs and promoting economic development. They contribute to at least 30% of Kenya’s gross domestic output. Despite their significance, these enterprises encounter formidable challenges such as funding constraints, limited access to modern technology, restricted market expansion, regulatory burdens, and poor resource management, all of which curtail their profitability and socioeconomic effects. These challenges lead to SMEs recording lower profitability levels that limit their societal effects. This study aimed to investigate the relationship between digital finance and profitability of small and medium enterprises. The study was supported by Diffusion of Innovation (DOI) Theory. The research adopted an exploratory research design. The study sampled 375 respondents from a population of 15,045 SMEs in Siaya County using systematic and stratified random sampling techniques. Data was analyzed using descriptive and inferential statistics. The results demonstrated significant relationships between digital finance and SME profitability. Specifically, hypotheses asserting no significant relationships between digital credit, digital savings, and profitability were all rejected (P-values < 0.05) with study findings suggesting a positive relationship. This study is significant as it provides empirical evidence that various aspects of digital finance, including digital credit and savings significantly enhance the profitability of SMEs in Siaya County. The findings can benefit SMEs by highlighting effective digital financial strategies, assisting the government in appreciating the need to promote digital financial inclusion and guiding policymakers in developing supportive regulations and initiatives geared at bolstering the profitability and economic growth of SMEs.