Determinants of small & medium scale enterprises’ financing: with special reference to small & medium scale Enterprises in Badulla District
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Date
2015
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Journal ISSN
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Publisher
Uva Wellassa University of Sri Lanka
Abstract
Role of the Small and Medium sized enterprises (SMEs) is vital for economic development.
Contribution to national income, job creation, poverty alleviation and exports promotion are some
examples for their contributions. SMEs have become an important contributor to the Sri Lankan
economy. In Sri Lankan context SMEs can be defined as enterprises that have employees between
10 and99 (World Bank Definition for Sri Lanka). According to this definition around 90% of Sri
Lankan businesses can be identified as SMEs. Their contribution to industrial value added is around
20% and it provides over 35% employment opportunities.
SMEs can fulfill their financial requirements with both formal and informal financial sources.
Kushnirovich and Helibrunn (2008) identified own savings as a most significant financial source.
Basu and Goswami (1999) revealed own savings and informal capital as major financial sources of
SMEs. However, selection of financing sources depends on various factors in SMEs context (
Gangata & Matavire; Kira & He, 2012). Moreover, Altinay and Altinay (2006) revealed variables
such as ethnicity, age of owner, firm characteristics, owner’s education and language skills are
significant determinants of financing decision.
There is an immense potential to enhance SMEs contribution to economic development. However,
despite of their major contributions, SMEs are facing a number of obstacles to develop. In
developing countries, such as Sri Lanka, access to finance is the most important obstacle to SMEs
and it creates entry and growth barriers for them.
Although there is an increase in supply of formal credit, Haugen (2006) identified informal lenders
as dominant source of SME finance. Further, financial institutions are considering SMEs as high
risk ventures. Hence, it is difficult for SMEs to access in to formal financing sources. Moreover,
Titus and Huka identified flexibility, availability, less paper work and official requirements and
accessibility as advantages of informal financing. In this end, this research intends to contribute to
identify determinants of informal financing in the context of SME financing in Sri Lanka.
Methodology
SMEs in Badulla district which registered under Chamber of Commerce in Sri Lanka have
identified as the population of this research. A sample of 50 SMEs was considered based on
systematic sampling method. A questionnaire was administered to collect primary data and
published articles and journals ware used in order to gather secondary data. Descriptive statistical
techniques were used to discover and summarize the attributes of the sample. Furthermore,
correlation coefficient analysis was also used to combine the contribution of each parts of the
independent variable. The regression model can be expressed as follows.
Description
Keywords
Management, Entrepreneurship, Entrepreneurship and management, Financial Management, Financial