Oduor, Domnic Ochieng2025-08-282025-08-282025-06https://ir-library.ku.ac.ke/handle/123456789/31297A Thesis Submitted to the School of Business, Economics and Tourism in Partial Fulfilment of the Requirement for the Award of Degree of Master of Science in Finance of Kenyatta University, June 2025. Supervisors 1. Ambrose Jagongo 2. Charity NjokaSmall and medium-sized enterprises are vital in creating jobs and promoting economic development. They contribute to at least 30% of Kenya’s gross domestic output. Despite their significance, these enterprises encounter formidable challenges such as funding constraints, limited access to modern technology, restricted market expansion, regulatory burdens, and poor resource management, all of which curtail their profitability and socioeconomic effect. These challenges lead to Small and medium-sized enterprises recording lower profitability levels that limit their societal effects. The shift towards a more digital economy, facilitating remote transactions, holds promise in overcoming these obstacles through digital finance. Credible research indicates that digital financial tools can boost business profitability by at least 30%. Kenya stands out as a pioneering hub of financial technology innovation in Africa, with digital finance emerging around 2007-2010, yet there remains a notable scarcity of studies demonstrating the link between digital finance and financial success of business enterprises. This particular study aimed to evaluate the link between the profitability of small and medium enterprises and their adoption of digital finance. Specifically, it investigated the effect of digital credit, digital savings, digital payments, digital financial literacy, and digital platform ecosystems on Small and medium-sized enterprises profitability in Siaya County. The research framework drew on the Diffusion of Innovation, Davis Technology Acceptance, and Resource Based theories. Longitudinal and cross-sectional research methodologies were adopted. The study was also grounded in a pragmatic research philosophy and exploratory research design. The study sampled 375 respondents from a population of 15,045 Small and medium-sized enterprises in Siaya County using systematic and stratified random sampling techniques. The study covered the period between 2018-2022. A semi-structured self-administered questionnaire was used in data collection by dropping at respondents’ premises and collecting once they have filled. Statistical analysis using Statistical Package for the Social Sciences version 23 enabled the calculation of inferential statistics, revealing significant relationships between study variables. The results demonstrated significant relationships between digital finance and Small and medium-sized enterprises profitability. Specifically, hypotheses asserting no significant relationships between digital credit, digital savings, digital payment, digital platform ecosystems, and Small and medium-sized enterprises profitability were all rejected (P-values < 0.05) with study findings suggesting a positive relationship. Additionally, the hypothesis that digital financial literacy does not moderate the relationship between digital finance and Small and medium-sized enterprises profitability was also dismissed (P-value < 0.05), indicating that digital financial literacy indeed moderates this relationship. This study is significant as it provides empirical evidence that various aspects of digital finance, including digital credit, savings, payment, and platform ecosystems, significantly enhance the profitability of Small and medium-sized enterprises in Siaya County, with digital financial literacy further strengthening these relationships. The findings can benefit Small and medium-sized enterprises by highlighting effective digital financial strategies, assist the government appreciate the need to promote digital financial inclusion, and guide policymakers in developing supportive regulations and initiatives geared at bolstering the profitability and economic growth of Small and medium-sized enterprises. Suggestions for further studies include examining the evolving role of government policies in fostering an inclusive digital financial ecosystem for Small and medium-sized enterprises. The study advocates for further research that evaluates the scalability and sustainability of policies enhancing digital financial services for Small and medium-sized enterprises, focusing on best practices and regulatory compliance.en