Bank Digital Transformation and SME Credit Accessibility: Evidence from Emerging Markets and the Moderating Role of Regulatory Frameworks

Abstract

Purpose: This study examines the impact of bank digital transformation on small and medium enterprise (SME) credit accessibility in emerging markets, investigating how regulatory frameworks moderate this relationship across diverse institutional contexts. Methodology: The analysis employs panel data from 487 banks across 25 emerging market economies during 2018-2023, utilizing fixed-effects regression models with interaction terms and system GMM estimation to address endogeneity concerns. Digital transformation is measured through a composite index incorporating digital channel penetration, fintech applications, and infrastructure investment, while SME credit accessibility combines loan approval rates and credit portfolio allocation metrics. Findings: Digital transformation positively affects SME credit accessibility, though the economic magnitude remains moderate (β = 0.183, p < 0.05). Regulatory quality significantly moderates this relationship but with limited amplification effects (18% enhancement). Heterogeneous impacts emerge across development levels, with middle-income countries and Asian markets demonstrating stronger relationships than low-income and African contexts. Medium-sized banks exhibit superior transformation effectiveness compared to both large and small institutions. Conclusion: Technological adoption alone cannot overcome structural barriers to SME financing in emerging markets, requiring complementary institutional reforms and calibrated regulatory frameworks. Practical Implications: Policymakers should pursue comprehensive strategies integrating digital infrastructure development with institutional capacity building, regulatory experimentation, and market structure reforms rather than relying solely on technological solutions for financial inclusion objectives.