Construction of Financial Inclusion Index for Micro, Small, and Medium-Sized Enterprises (MSMEs) in Malaysia

Rosmah Nizam, Siti Fahazarina Hazudin, Malik Cahyadin, Zulkefly Abdul Karim and Rozita Uji Mohammed
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Rosmah Nizam: Faculty of Business and Management, Universiti Teknologi MARA Cawangan Pahang, Kampus Jengka, Malaysia
Siti Fahazarina Hazudin: Faculty of Economics and Business, Universitas Sebelas Maret, Indonesia
Malik Cahyadin: Faculty of Economics and Business, Universitas Sebelas Maret, Indonesia
Zulkefly Abdul Karim: Center for Sustainable and Inclusive Development Studies (SID), Faculty of Economics and Management, Universiti Kebangsaan Malaysia (UKM), Bangi, Selangor, Malaysia
Rozita Uji Mohammed: Faculty of Business and Management, Universiti Teknologi MARA Sabah, Malaysia

International Journal of Research and Innovation in Social Science, 2024, vol. 8, issue 10, 2260-2272

Abstract: This study intends to develop a new index for assessing the financial inclusion of the Micro, Small, and Medium-sized Enterprises (MSMEs) in Malaysia. The index includes two important dimensions, namely digital financial technology (fintech) and digital financial literacy, using survey data from selected MSMEs in Malaysia for 2023. A total of 177 firms are voluntarily participated in the study, which were recruited based on the purposive sampling technique’s non-probability. This study employed non-parametric approaches using a multidimensional measurement model with Principal Component Analysis (PCA) as a parametric way to assess the index of financial inclusion. The main findings revealed that fintech dimensions and digital financial literacy possess a relative relevance and a substantial association with the level of financial inclusion. The study indicates that a higher index value signifies greater financial inclusion for firms, but a lower index value denotes the opposite. The implication from this study suggest that Malaysian policymakers must formulate policies and strategies pertinent to financial inclusion for MSMEs. Furthermore, the accessibility of digital financial technology services and digital financial literacy must be enhanced to elevate the financial inclusivity of firms.

Date: 2024
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