Research Symposium-2015

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    Factors affecting to neglect formal financing sources by the SMEs; with special reference to Badulla district
    (Uva Wellassa University of Sri Lanka, 2015) Karunarathna, T.A.O.S.; Fernando, P.I.N.
    In terms of need for finance, the International Finance Corporation IFC defines an SME as ‘Small Enterprises’ with loan size of $10,000 to $100,000 and ‘Medium Enterprise’ with loan sizes of $100,000 to $1 million (UNEP, 2007). According to the Central Bank of Sri Lanka (1998), the cottage and Small Scale Industries (CSSI) sector plays an important role in economic development through creation of employment opportunities, the mobilization of domestic savings, poverty alleviation, income distribution, regional development, training of workers and entrepreneurs, creating an economic environment in which large firms flourish and contribute to export earnings. According to Kihimbo et al.,(2012), SMEs financing constraints are attributed by high transaction costs, high collateral requirements and lack of guarantee credit instruments, deficiencies in legal systems, regulatory and policy problems and asymmetric information. In order to operate efficiently, SMEs require easy access to short and long term capital. In general terms, it appears that lending to SMEs is seen as a high risk business since most of these enterprises lack collateral. Since, that is a major obstacle faced by SMEs, may be badly affected on the country’s economy as well. In accordance with Wahab and Hassan (2012), despite the importance of (SMEs) in the national economy in general, they face many obstacles that hinder their development; one of which is evident in the aspect of financial access. The primary objective is to identify the relationship of the formal financing dimensions that influence to the SME owners’ formal financing decision. Secondary objectives are to determine the impact of the formal financing dimensions on formal financing decision of SME owners and to determine the most and least important formal financing dimension factor that influence to the SME owners’ formal financing decision. Methodology All the SME owners in Badulla district were considered as the population of the study who are registered in Badulla District under the Chamber of Commerce and Industry of Uva Province. Therefore, the sample of 60 SME owners is selected from metropolitan and rural areas, who are doing their businesses in Badulla district. The sample has been selected using stratified sampling method. Data was collected by using a structured questionnaire. In addition, Cronbach Alpha reliability test was employed to assess the validity of the questionnaire and 0.822 of Conbrach’s alpha value indicated that the internal reliability and validity of questionnaire was acceptable since that these levels are exceeding the general acceptable level. Hence, it was suitable for the further processing. Data were analyzed using descriptive statistics, correlation analysis and multiple linear regressions.