How does e-commerce adoption impact micro, small, and medium enterprises’ performance and financial inclusion? Evidence from Indonesia

We study the adoption of technology by micro, small, and medium enterprises (MSMEs) in Indonesia to enhance their businesses and inclusivity in financial products and services. Using a survey of 338 MSMEs that adopt e-commerce across ten provinces in the country, we use two-stage least squares regression to empirically analyze the impact of e-commerce adoption on business performance and its effect on financial inclusion. We further investigate the effects of e-commerce on marketing by performing ordered logistic regression using indicators in ordinal scale. The results show that brand recognition and customer awareness improve performance significantly. Our findings also reveal that the performance improvements caused by e-commerce adoption will encourage better inclusion of MSMEs in the financial system through access and use of more diverse financial products and services. Furthermore, collaborations between financial institutions and e-commerce platforms will accelerate MSMEs’ financial inclusion in Indonesia.