Abstract:
This study investigated the determinants of digital financial services (DFS) adoption among
Small and Medium Enterprises (SMEs) In Arusha District, Tanzania. Employing a cross- sectional design, data was gathered from 129 SME owners through a structured questionnaire. Logistic regression analysis was utilized to explore the impact of various factors on DFS
adoption. Findings revealed that SMEs with intermediate and expert ICT experience were more
likely to have adopted DFS, emphasizing the role of technological familiarity. Notably, high
financial literacy, particularly among those with very high literacy levels, positively influenced
adoption. However, increased awareness among SME owners was associated with a
decreased likelihood of DFS adoption, suggesting potential misconceptions or perceived
barriers. The cost of technology diffusion emerged as a significant deterrent, with higher costs
negatively affecting adoption probabilities. Access to digital infrastructure and devices, ease of
use, and low perceived risk positively influenced adoption. Barriers hindering adoption included
low technology usage within organizations, insufficient qualified staff, financial constraints,
inadequate technology resources, and poor internet connectivity. To enhance DFS adoption, this study recommends that, policymakers should prioritize initiatives that enhance digital
infrastructure, including improving internet connectivity and ensuring the availability of
necessary hardware and software resources. Financial institutions can also play a pivotal role
by designing flexible financial products tailored to the needs of SMEs. To offer financial literacy
programs alongside these products can enhance SME owners' understanding of digital financial
tools and their benefits
