Exploring Heterogeneity in the Impact of Financial Inclusion on MSMEs’ Performance

This study investigates the impact of financial inclusion on micro, small, and medium-sized enterprises (MSMEs) performance. By using a unique firm-level survey dataset comprising 2,229 MSMEs in China, with an Instrument Variable approach controlling for endogeneity issue, we find that credit access significantly enhances MSMEs’ performance. The availability of formal finance is particularly crucial for the development of MSMEs that are more financially excluded, such as urban, low-tech, unlisted MSMEs, and those located in regions with lower economic development. These findings underscore the importance of financial inclusion in fostering the growth and performance of MSMEs, especially in underserved regions and sectors. For policymakers, enhancing access to formal credit for financially excluded firms can drive economic growth convergence.