Readiness for Digital Financial Transformation: The Case of Micro, Small and Medium Enterprises in Indonesia

Abstract

Micro, Small, and Medium Enterprises (SMEs) play an important role in Indonesia's economy because they contribute significantly to the country's GDP and are key drivers of employment, absorbing a large portion of the workforce. To boost their competitiveness and enhance performance, it is essential for SMEs to embrace technology. This study investigates SMEs’ readiness for digital financial transformation in Indonesia, as technology is vital for achieving efficiency and effectiveness. This study surveyed 411 SMEs in the country to assess their readiness for digital financial transformation. It examined their use of various digital tools, including marketplaces as selling platforms, fintech payment solutions, P2P lending for capital access or investment, and other digital investment accounts. We discovered that SMEs are bankable and use mobile/internet banking, but they require greater readiness to adopt fintech solutions. Moreover, we found that technological knowledge, market demand, and owner education significantly influence readiness for digital transformation. This study indicates that the government should enhance SMEs’ literacy in technology to support their business success.