Effect of Institutional Quality on Financial Inclusion of SMEs in MENA Countries

Purpose: This study investigates whether institutional quality influences monetary partaking (financial inclusion) among SMEs in Middle East and North African (MENA) countries. It analyses how political stability, government effectiveness, and regulatory quality shape SME access to financial services across a 29-year period (1996–2023). Design/Methodology/Approach: The study adopts an ex-post facto research design using secondary data from the Worldwide Governance Indicators (WGI) and Global Findex database. Financial inclusion indicators include SME access to credit, savings, and digital payments. Institutional quality is measured through political stability, regulatory quality, and government effectiveness. Robust regression analysis was applied to address non-normal data distribution, confirmed by a Shapiro–Wilk test (W = 0.977, p < 0.05), while a Breusch-Pagan test (χ² = 0.01, p = 0.9097) verified homoscedasticity. Findings: Political stability (β = 0.288, p < 0.001) and regulatory quality (β = 0.584, p < 0.001) significantly enhance SME financial inclusion, while government effectiveness has no significant effect (β = 0.001, p = 0.985). The model accounts for 86.74% of the variation in financial inclusion (R² = 0.8674), highlighting institutional factors as key determinants. Implications/Originality/Value: The study underscores the importance of improving political stability and regulatory frameworks to expand SME financial inclusion in MENA countries. It contributes original long-term empirical evidence and provides practical insights for policymakers aiming to strengthen institutional environments and reduce financial barriers for SMEs.