The Role of Shariah-Compliant Financing and Financial Intermediation in Analyzing the Impact of Financial Inclusion on SME Growth in Balochistan, Pakistan

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This study analyzes how SME growth is influenced by financial inclusion in Balochistan, a province of Pakistan. Furthermore, it also examines how the Shariah-compliant mode of financing and financial intermediation influences SME growth. A sample of 300 respondents was taken from three major cities in Balochistan, namely Quetta, Gwadar, and Turbat, based on judgmental sampling. Structural Equation Modelling (SEM) was employed to evaluate the direct impact of financial inclusion, Shariah-compliant financing, and financial intermediation on SME growth. As far as the direct effect of PLS-SEM is concerned, financial inclusion was found to be statistically significant to financial intermediation and two SME growth dimensions, namely profit growth and sales growth. The other two dimensions, namely market share growth and workforce growth, remain statistically insignificant. Whereas, financial intermediation is statistically significant and impacts negatively on SME growth (profit growth and sales growth) directly. In the case of indirect effect, Shariah-compliant financing was found to have a statistically negative and significant impact on financial inclusion and SME growth dimensions of profit growth and sales growth. Similarly, it was determined that financial intermediation mediates substantially and negatively impacts financial inclusion and SME growth.