Digital Financial Inclusion and Profitability of Agro-Based SMEs in North-Eastern Nigeria

Abstract

This study examined the effect of digital financial inclusion channels on the profitability of agro-based Small and Medium Enterprises (SMEs) in Northeastern Nigeria. The study was motivated by the persistent underperformance of agro-based SMEs in the region, despite the increasing proliferation of digital banking channels, and the limited empirical attention given to how these channels specifically influence agro-based enterprise performance in infrastructural and security-challenging environments. Digital financial inclusion was operationalized through five digital banking channels- mobile banking, Internet Banking, Virtual Banking, Point-of-Sale, and automated teller machines- as explanatory constructs, and profitability as the dependent variable. A cross-sectional survey research design was adopted, with primary data collected through structured questionnaires administered to owners and managers of registered agro-based SMEs across the six states of Northeastern Nigeria, including Adamawa, Bauchi, Borno, Gombe, Taraba, and Yobe States, giving 277 usable responses (87% of 317 distributed). Partial Least Squares Structural Equation Modelling (PLS-SEM) was employed to analyse the data, using SmartPLS software. The measurement models demonstrates satisfactory indicator reliability, internal consistency reliability, convergent validity, and discriminant validity across all constructs, while the structural models exhibited acceptable model fit indices. The results revealed that mobile banking, virtual banking, internet banking, and Point of Sale have statistically significant positive effects on profitability, establishing them as consistent drivers of agro-based SMEs' profitability, while automated teller machines have no significant effect on profitability. The study concludes that digital financial inclusion exerts a broadly significant, though channel and outcome-specific, effect on the profitability of agro-based SMEs in Northeastern Nigeria. The study recommends that banks and policymakers adopt a differentiated approach to digital financial inclusion strategy, expanding virtual and mobile banking infrastructure while addressing the connectivity barriers that limit the profitability benefits of Automated Teller Machines for agro-based SMEs in the region.