Project – Digital Financial Inclusion and the Growth of Women-Owned Small and Medium Enterprises (SMEs): A Study of OPay Users in Lagos State

CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

The growth and sustainability of small and medium enterprises (SMEs) have become central to economic development strategies across both developed and developing economies. SMEs contribute significantly to employment generation, poverty reduction, innovation, income creation, and inclusive economic growth. In many developing countries, SMEs serve as important vehicles for entrepreneurship development by providing opportunities for individuals, particularly women and other economically disadvantaged groups, to participate actively in productive activities (World Bank, 2022). However, despite their economic importance, many SMEs continue to face challenges related to access to finance, inadequate business infrastructure, limited market opportunities, poor financial literacy, and restricted access to formal financial services.

Women-owned SMEs represent a particularly important segment of entrepreneurial activity because they contribute significantly to household welfare, community development, and economic diversification. Globally, women entrepreneurs have increasingly participated in small business ownership across sectors such as retail, agriculture, manufacturing, services, fashion, food processing, and technology. However, women-owned enterprises often experience greater constraints than male-owned businesses, particularly regarding access to capital, financial services, business networks, property ownership, and institutional support (International Finance Corporation [IFC], 2017). These limitations have historically restricted women’s ability to expand their businesses, improve productivity, and achieve long-term sustainability.

Financial inclusion has emerged as a major policy priority for promoting inclusive economic development and reducing inequalities in access to financial resources. Financial inclusion refers to the availability, accessibility, and effective utilisation of affordable financial services, including payments, savings, credit, insurance, and other financial products by individuals and businesses, particularly those traditionally excluded from formal financial systems (World Bank, 2022). Inclusive financial systems enable individuals and enterprises to manage risks, invest in productive activities, improve financial resilience, and participate more effectively in economic opportunities.

Traditionally, access to financial services for SMEs has depended largely on conventional banking systems. However, many small business owners, especially women entrepreneurs, have experienced difficulties accessing formal banking services due to stringent lending requirements, collateral demands, high transaction costs, limited financial documentation, and geographical barriers. These challenges have contributed to what is commonly referred to as the financial inclusion gap, where significant segments of the population remain underserved by traditional financial institutions (Demirgüç-Kunt et al., 2022).

The emergence of digital financial services has transformed the financial inclusion landscape by providing alternative mechanisms for accessing financial products and services. Digital financial inclusion involves the use of digital technologies, including mobile phones, internet platforms, electronic payment systems, mobile money applications, and fintech solutions, to deliver affordable and convenient financial services to individuals and businesses (Gomber, Koch, & Siering, 2017). Digital financial platforms have reduced traditional barriers associated with banking access by enabling users to conduct transactions remotely, receive payments, save money, access credit facilities, and manage business finances electronically.

The rapid expansion of financial technology (FinTech) has significantly influenced the development of digital financial inclusion globally. FinTech refers to the application of innovative digital technologies to improve and automate financial services. Through mobile applications, artificial intelligence, digital payment systems, blockchain technology, and data-driven credit assessment models, FinTech companies have introduced new approaches to financial service delivery (Arner, Barberis, & Buckley, 2016). These innovations have particularly benefited underserved populations by providing faster, cheaper, and more accessible financial solutions.

In Africa, digital financial inclusion has become an important mechanism for expanding economic participation among individuals and small businesses. The widespread adoption of mobile phones, increased internet penetration, and growth of fintech companies have created opportunities for millions of people previously excluded from formal financial systems. According to the World Bank (2022), digital technologies have played a significant role in increasing financial account ownership and expanding access to payment services across developing economies. Mobile money platforms have become particularly important in countries where traditional banking infrastructure remains limited.

Nigeria represents one of Africa’s largest and fastest-growing digital financial markets. With a large youthful population, expanding telecommunications infrastructure, and increasing smartphone adoption, Nigeria has experienced significant growth in digital financial services. The Central Bank of Nigeria (CBN) has promoted financial inclusion through several initiatives, including the National Financial Inclusion Strategy, which aims to increase access to formal financial services and encourage digital payment adoption among underserved populations (Central Bank of Nigeria [CBN], 2022).

Despite these efforts, financial exclusion remains a major challenge in Nigeria, particularly among women and micro, small, and medium enterprise owners. Many women entrepreneurs operate informal businesses and often lack access to conventional credit facilities due to inadequate collateral, limited credit history, and gender-related barriers within financial systems. Consequently, digital financial platforms have emerged as important alternatives for women-owned SMEs seeking affordable and accessible financial solutions.

The role of digital financial inclusion in SME growth extends beyond access to payment services. Digital financial platforms provide entrepreneurs with opportunities to improve business efficiency, maintain transaction records, access financial information, receive customer payments, build credit profiles, and potentially access digital lending services. For women-owned SMEs, these benefits can contribute to improved business performance, increased sales, better financial management practices, and enhanced capacity for business expansion.

Digital financial services also contribute to the formalisation of small businesses. Many SMEs in developing economies operate informally due to regulatory barriers, financial constraints, and limited access to institutional support. Digital payment platforms create transaction histories that may help businesses demonstrate financial activity, improve accountability, and become more visible to financial institutions. This can increase their opportunities to access credit and other business development resources (Ozili, 2020).

One of the major developments within Nigeria’s digital financial ecosystem has been the emergence of fintech companies offering mobile-based financial services. Among these platforms, OPay has become one of Nigeria’s prominent digital financial service providers. OPay provides services including mobile payments, money transfers, bill payments, savings solutions, and other digital financial products through mobile technology. The platform has gained significant adoption among individuals and small business operators due to its accessibility, ease of use, and ability to facilitate daily business transactions.

For women-owned SMEs in Lagos State, digital platforms such as OPay may provide opportunities to overcome some of the limitations associated with traditional financial systems. Lagos State represents Nigeria’s commercial hub and hosts a large concentration of SMEs operating across various sectors, including retail, food services, fashion, beauty services, transportation, and informal trade. Many women entrepreneurs in Lagos rely on digital payment platforms to receive customer payments, pay suppliers, manage transactions, and conduct business activities efficiently.

The importance of SMEs to Lagos State’s economy cannot be overstated. The state has one of the largest concentrations of small businesses in Nigeria, contributing significantly to employment generation and local economic development. However, many women-owned SMEs in Lagos continue to experience challenges such as inadequate capital, limited access to affordable loans, unstable income flows, and weak financial management systems. Digital financial inclusion therefore represents a potential pathway for improving their business performance and sustainability.

From an entrepreneurship perspective, access to finance remains one of the most significant determinants of SME growth. According to Beck and Demirgüç-Kunt (2006), financial constraints limit firms’ ability to invest, expand operations, adopt technology, and improve competitiveness. For women entrepreneurs, these constraints are often more severe due to social, institutional, and economic barriers. Digital financial services may reduce some of these limitations by providing convenient access to payment systems, savings mechanisms, and alternative financing opportunities.

The relationship between digital financial inclusion and SME growth can also be explained through the Resource-Based View (RBV) of entrepreneurship, which suggests that access to valuable resources enhances business competitiveness and performance (Barney, 1991). Digital financial capabilities, including electronic payment access, transaction data, digital financial management tools, and online banking services, can serve as strategic resources that enable women-owned SMEs to improve efficiency and achieve growth.

However, despite the increasing adoption of digital financial services in Nigeria, several challenges may limit their effectiveness among women-owned SMEs. These challenges include inadequate digital literacy, cybersecurity concerns, unreliable internet connectivity, transaction failures, limited awareness of available services, trust issues, and concerns about fraud. Women entrepreneurs may also face additional barriers related to education levels, technology access, and socio-cultural factors influencing technology adoption.

Furthermore, while previous studies have examined financial inclusion and SME development in Nigeria, limited attention has been given to the specific role of digital financial inclusion platforms in supporting women-owned SMEs. Existing research has often focused broadly on financial access without adequately examining how fintech platforms influence business growth outcomes such as sales expansion, profitability, financial management efficiency, business sustainability, and entrepreneurial empowerment.

There is therefore a need for empirical investigation into how digital financial inclusion affects the growth of women-owned SMEs, particularly among users of emerging fintech platforms such as OPay in Lagos State. Understanding this relationship is important because digital financial services are increasingly becoming central to Nigeria’s financial ecosystem and may provide new pathways for improving women’s economic participation.

Against this background, this study seeks to examine the relationship between digital financial inclusion and the growth of women-owned small and medium enterprises (SMEs), using OPay users in Lagos State as the focus of investigation. The study will examine how access to digital payment services, digital savings facilities, digital credit opportunities, and financial management tools influence the growth and sustainability of women-owned SMEs.

1.2 Statement of the Problem

Small and Medium Enterprises (SMEs) remain a critical component of Nigeria’s economic development, contributing significantly to employment creation, poverty reduction, innovation, and income generation. Within this sector, women-owned SMEs represent an important source of economic participation and livelihood support, particularly in urban commercial centres such as Lagos State. Women entrepreneurs engage in diverse business activities, including retail trading, fashion, catering, beauty services, agro-processing, and other service-oriented enterprises. However, despite their economic contributions, many women-owned SMEs continue to experience persistent challenges that limit their growth, competitiveness, and sustainability.

One of the most significant challenges confronting women-owned SMEs in Nigeria is limited access to formal financial services. Access to finance remains a major determinant of business survival and expansion because entrepreneurs require adequate capital to purchase inventory, acquire equipment, adopt new technologies, increase production capacity, and respond to market opportunities. However, many women entrepreneurs encounter difficulties accessing conventional banking services due to factors such as inadequate collateral, limited credit history, high interest rates, complex loan application procedures, and perceived risks associated with small informal businesses (International Finance Corporation [IFC], 2017). These barriers have contributed to the continued financial exclusion of many women-owned enterprises.

Although Nigeria has implemented several financial inclusion initiatives aimed at improving access to financial services, significant gaps remain, particularly among women and small business operators. The Central Bank of Nigeria (CBN) introduced the National Financial Inclusion Strategy to expand access to financial services, encourage digital payments, and reduce exclusion among underserved populations (CBN, 2022). However, many women-owned SMEs still operate outside formal financial systems due to limited access to affordable financial products, low financial literacy, inadequate awareness of available services, and structural barriers within traditional banking institutions.

The emergence of digital financial services has created new opportunities for addressing some of the challenges associated with traditional financial exclusion. Digital financial platforms such as mobile payment applications, electronic wallets, and fintech solutions have expanded access to financial services by allowing users to conduct transactions, receive payments, save money, and access financial products through mobile devices. These platforms have the potential to improve business efficiency, enhance financial management practices, and support SME growth. However, despite the rapid growth of digital financial services in Nigeria, the extent to which these platforms contribute to the growth of women-owned SMEs remains insufficiently understood.

The adoption of digital financial inclusion among women-owned SMEs is particularly important in Lagos State because of the high concentration of entrepreneurial activities and the increasing dependence on digital payment systems. Lagos has one of Nigeria’s largest SME ecosystems, with thousands of women entrepreneurs operating businesses across formal and informal sectors. Many of these businesses increasingly rely on digital platforms such as OPay for receiving customer payments, transferring funds, paying suppliers, and managing daily transactions. Nevertheless, questions remain regarding whether access to these digital financial services translates into measurable improvements in business growth outcomes such as increased sales, profitability, customer expansion, business sustainability, and access to additional financial resources.

Furthermore, while digital financial platforms provide opportunities for improving financial inclusion, their adoption does not automatically guarantee business growth. Several factors may influence the effectiveness of digital financial services among women-owned SMEs, including digital literacy, internet accessibility, trust in digital platforms, security concerns, transaction costs, technological skills, and entrepreneurs’ ability to integrate digital tools into business operations. Without adequate knowledge and capacity, women entrepreneurs may use digital platforms only for basic payment transactions without fully benefiting from advanced financial services such as digital savings, credit facilities, and financial management tools.

Another concern relates to the limited empirical evidence regarding the specific influence of fintech platforms on women-owned SME development in Nigeria. Existing studies on financial inclusion have largely focused on general access to banking services, mobile money adoption, or financial literacy, with relatively fewer studies examining how digital financial inclusion affects women entrepreneurs’ business growth. Moreover, many available studies examine financial inclusion at a national level without focusing specifically on users of particular digital financial platforms such as OPay within Lagos State.

There is also a contextual gap in existing literature. Studies conducted in other countries or regions may not adequately explain the experiences of Nigerian women entrepreneurs because digital financial adoption is influenced by local factors such as regulatory conditions, technological infrastructure, cultural expectations, informal business practices, and economic realities. Therefore, investigating OPay users in Lagos State provides an opportunity to generate context-specific evidence regarding how digital financial inclusion contributes to women-owned SME growth within Nigeria’s unique entrepreneurial environment.

The problem is further complicated by the persistent gender inequalities experienced by women entrepreneurs. Although women constitute a significant proportion of Nigeria’s entrepreneurial population, they often face additional constraints compared with male entrepreneurs. These include limited ownership of productive assets, reduced access to business networks, lower participation in formal financial systems, and difficulties obtaining business loans. Digital financial inclusion has been promoted as a mechanism capable of reducing these inequalities; however, the actual benefits experienced by women-owned SMEs require further investigation.

Additionally, concerns regarding digital financial services, including cybersecurity risks, fraud, unreliable network infrastructure, transaction failures, and inadequate consumer protection, may affect users’ confidence and willingness to rely on fintech platforms for business activities. For women entrepreneurs operating small businesses with limited resources, financial losses arising from digital fraud or service disruptions may negatively affect business continuity. Therefore, understanding both the opportunities and limitations associated with digital financial inclusion is essential.

The absence of sufficient empirical evidence on these issues creates challenges for policymakers, financial technology providers, business development agencies, and women entrepreneurs seeking to maximise the benefits of digital financial services. Without clear understanding of the relationship between digital financial inclusion and SME growth, interventions aimed at promoting women’s entrepreneurship and financial empowerment may not achieve their intended outcomes.

Consequently, this study seeks to address these gaps by examining the influence of digital financial inclusion on the growth of women-owned Small and Medium Enterprises (SMEs), focusing specifically on OPay users in Lagos State. The study will investigate how digital payment accessibility, digital financial services utilisation, financial management capabilities, and access to digital financial products influence the growth and sustainability of women-owned SMEs. The findings will provide valuable insights for entrepreneurs, policymakers, fintech companies, and financial institutions seeking to promote inclusive economic growth through digital financial innovation.

1.3 Aim of the Study

The main aim of this study is to examine the influence of digital financial inclusion on the growth of women-owned Small and Medium Enterprises (SMEs), using OPay users in Lagos State as a case study.

1.4 Objectives of the Study

The specific objectives of the study are to:

1. examine the extent of digital financial inclusion among women-owned SMEs using OPay in Lagos State;
2. determine the influence of digital payment services on the growth of women-owned SMEs in Lagos State;
3. assess the effect of digital financial services such as savings and credit facilities on the growth of women-owned SMEs; and
4. identify the challenges affecting effective utilisation of digital financial inclusion services among women-owned SMEs in Lagos State.

1.5 Research Questions

The study will be guided by the following research questions:

1. What is the extent of digital financial inclusion among women-owned SMEs using OPay in Lagos State?
2. How do digital payment services influence the growth of women-owned SMEs in Lagos State?
3. To what extent do digital savings and credit facilities affect the growth of women-owned SMEs?
4. What challenges affect the effective utilisation of digital financial inclusion services among women-owned SMEs in Lagos State?

1.6 Research Hypothesis

The study will test the following null hypothesis:

H₀: Digital financial inclusion has no significant influence on the growth of women-owned Small and Medium Enterprises (SMEs) among OPay users in Lagos State.

1.7 Significance of the Study

This study is significant because it examines the role of digital financial inclusion in promoting the growth of women-owned Small and Medium Enterprises (SMEs), with specific attention to OPay users in Lagos State. The study provides important insights into how digital financial technologies contribute to financial accessibility, business development, and entrepreneurial empowerment among women. The significance of the study is discussed in relation to women entrepreneurs, policymakers, financial technology providers, financial institutions, researchers, and the broader economy.

The findings of this study will be beneficial to women-owned SME operators by providing a clearer understanding of how digital financial services can be leveraged to improve business performance and sustainability. Many women entrepreneurs operate businesses with limited financial resources and often experience difficulties accessing conventional banking services. By examining the benefits of digital financial inclusion, the study will highlight how platforms such as OPay can assist women entrepreneurs in receiving payments, managing business transactions, building financial records, accessing financial products, and improving business efficiency. The findings may encourage women business owners to maximise the opportunities provided by digital financial platforms beyond simple transaction processing.

The study will also be useful to financial technology companies, particularly digital payment service providers. The findings will provide insights into the experiences, needs, and challenges faced by women-owned SMEs using digital financial platforms. This information may assist fintech companies in designing more user-friendly, affordable, secure, and inclusive financial products that address the specific needs of women entrepreneurs. Understanding the factors that encourage or discourage digital financial adoption can enable fintech providers to improve service delivery, develop targeted solutions, and expand financial inclusion among underserved business groups.

The research will be valuable to policymakers and government agencies, including the Central Bank of Nigeria (CBN), Small and Medium Enterprises Development Agency of Nigeria (SMEDAN), Ministry of Trade and Investment, and other institutions responsible for entrepreneurship development and financial inclusion. The findings will provide empirical evidence that may support the formulation of policies aimed at expanding digital financial access, reducing gender disparities in financial services, strengthening SME development programmes, and promoting women’s economic empowerment. The study may also assist policymakers in identifying barriers limiting effective digital financial inclusion among women entrepreneurs.

The study will contribute to improving the understanding of gender-inclusive economic development. Women-owned SMEs play an important role in employment generation, poverty reduction, household welfare, and community development. However, persistent gender-based barriers continue to limit women’s access to business resources. By examining digital financial inclusion as a potential mechanism for reducing these barriers, the study contributes to broader discussions on women’s financial empowerment and inclusive economic growth.

Financial institutions such as commercial banks and microfinance institutions will also benefit from this study. The findings will provide insights into how digital financial platforms complement or compete with traditional banking services among small business operators. Financial institutions may use the findings to develop innovative products, improve outreach strategies, establish partnerships with fintech companies, and create financial solutions that better serve women-owned SMEs.

The study is equally significant to business development organisations and entrepreneurship support programmes. Organisations involved in SME training, capacity building, and enterprise development may use the findings to design programmes that improve women’s digital skills, financial literacy, and ability to utilise digital financial services effectively. Since access to technology alone may not guarantee business growth, strengthening entrepreneurs’ knowledge and capacity remains essential for achieving sustainable outcomes.

From an academic perspective, this study contributes to the existing body of knowledge on digital financial inclusion, fintech adoption, women entrepreneurship, and SME growth. Although previous studies have examined financial inclusion and SME performance, fewer studies have specifically focused on digital financial inclusion among women-owned SMEs using emerging fintech platforms such as OPay in the Nigerian context. Therefore, this study provides context-specific empirical evidence that may serve as a reference for future researchers investigating digital finance, entrepreneurship development, and inclusive economic growth.

The study will also contribute to achieving several United Nations Sustainable Development Goals (SDGs), particularly SDG 5 (Gender Equality), SDG 8 (Decent Work and Economic Growth), and SDG 9 (Industry, Innovation and Infrastructure). By examining how digital financial inclusion supports women entrepreneurs, the study aligns with global efforts aimed at reducing economic inequalities, promoting innovation, creating employment opportunities, and supporting sustainable enterprise development.

Finally, the study will be useful to the Nigerian economy by highlighting strategies for improving SME productivity and sustainability through digital financial innovation. Since SMEs constitute a major component of economic activity in Nigeria, improving the capacity of women-owned businesses through accessible financial technologies can contribute to job creation, increased household income, poverty reduction, and broader economic development.

1.8 Scope of the Study

This study focuses on digital financial inclusion and the growth of women-owned Small and Medium Enterprises (SMEs) in Lagos State, Nigeria, with emphasis on OPay users.

Geographically, the study is limited to Lagos State, Nigeria. Lagos State was selected because it represents Nigeria’s major commercial and entrepreneurial centre, with a large concentration of SMEs and significant adoption of digital financial services. The state provides a suitable environment for examining the relationship between fintech-based financial inclusion and women entrepreneurship.

Thematically, the study examines the dimensions of digital financial inclusion, including:

• accessibility of digital payment services;
• utilisation of mobile financial platforms;
• digital savings and financial management services;
• access to digital credit facilities; and
• convenience, affordability, and reliability of digital financial transactions.

The study also examines SME growth indicators, including:

• business expansion;
• increase in sales volume;
• profitability improvement;
• customer growth;
• financial management efficiency; and
• business sustainability.

The respondents for the study comprise women entrepreneurs who own and operate SMEs and use OPay digital financial services in Lagos State. The study focuses specifically on women-owned SMEs because women entrepreneurs often experience unique financial access challenges compared with their male counterparts.

The study does not cover all fintech platforms operating in Nigeria. It is specifically limited to OPay users; therefore, findings may not necessarily represent users of other digital financial platforms such as PalmPay, Moniepoint, or traditional banking applications.

1.9 Operational Definition of Terms

Digital Financial Inclusion

Digital financial inclusion refers to the process of ensuring that individuals and businesses, particularly underserved groups, have affordable, accessible, and effective access to financial services through digital technologies such as mobile applications, electronic payment platforms, and online financial systems.

Financial Technology (FinTech)

FinTech refers to the application of digital technologies and innovative solutions to provide, improve, and automate financial services such as payments, savings, credit, and financial management.

Digital Financial Services

Digital financial services are financial products and transactions delivered through electronic platforms, including mobile money applications, digital wallets, online payments, electronic transfers, and technology-enabled banking solutions.

Small and Medium Enterprises (SMEs)

Small and Medium Enterprises refer to privately owned businesses operating on a relatively small scale in terms of employees, investment, and revenue, which contribute significantly to employment creation and economic development.

Women-Owned SMEs

Women-owned SMEs refer to small and medium enterprises where women have significant ownership, control, or managerial responsibility in business operations.

Business Growth

Business growth refers to improvements in enterprise performance measured through indicators such as increased sales, profitability, customer base expansion, market growth, improved efficiency, and long-term sustainability.

OPay

OPay refers to a digital financial technology platform that provides electronic payment services, money transfers, bill payments, savings solutions, and other financial services through mobile technology.

Financial Accessibility

Financial accessibility refers to the ease with which individuals or businesses can obtain and utilise financial services without excessive barriers such as high costs, complex procedures, distance limitations, or restrictive requirements.

Digital Literacy

Digital literacy refers to the ability of individuals to understand, access, and effectively use digital technologies and platforms for communication, financial transactions, and business activities.

Women Entrepreneurial Empowerment

Women entrepreneurial empowerment refers to the increased ability of women business owners to access resources, make independent business decisions, improve enterprise performance, and participate effectively in economic activities.

Project – Digital Financial Inclusion and the Growth of Women-Owned Small and Medium Enterprises (SMEs): A Study of OPay Users in Lagos State