Digital transformation in SME financing in Saudi Arabia: Leveraging digital financial intermediation to overcome challenges, maximize benefits, and foster sectoral growth

Abstract

This study examines the impact of digital financial intermediation on the performance of small and medium-sized enterprises (SMEs) in Saudi Arabia, focusing on blockchain technology, artificial intelligence (AI), and digital platforms. The study utilizes data from 307 SMEs in technology, gaming and esports, services, and industry sectors. It employs Structural Equation Modeling (SEM) and hierarchical regression analysis to analyze key relationships between digital adoption and business performance. Results indicate that digital technologies significantly enhance organizational capabilities (β=0.65, p<0.001) and financial performance (β=0.58, p<0.001). Digital readiness is a critical mediator, explaining 42% of operational efficiency variance. Sectoral analysis reveals that technology firms benefit the most from digital transformation (mean = 4.7), followed by gaming (4.5), services (4.2), and industry (4.0). Additionally, blockchain improves financial transparency (β=0.72, p<0.001), while AI enhances operational efficiency (β=0.68, p<0.001). The study provides a comprehensive framework linking digital adoption to SME performance, highlighting key mediating factors and sectoral disparities. Findings offer actionable insights for policymakers, financial institutions, and SME stakeholders to support digital transformation, including:

• Capacity-building programs to enhance digital competencies.


• Sector-specific digital strategies addressing industry challenges.


• Policy interventions to strengthen digital readiness and financial inclusion.

Aligned with Saudi Vision 2030, these insights contribute to sustainable growth, enhanced competitiveness, and digital financial integration.