Abstract:
This study investigates the impact of microfinance services on the development
of Small and Medium Scale Enterprises (SMEs) in the Western Province of Sri
Lanka. Recognized as a crucial sector for economic growth, regional
development, employment generation, and poverty reduction, SMEs in Sri Lanka
benefit significantly from the tailored financial and non-financial services
provided by Microfinance Institutions (MFIs). Despite the recognized importance
of SMEs, many in Sri Lanka face significant challenges in accessing traditional
financial services, hindering their growth potential. This study addresses the gap
in understanding how microfinance services specifically impact SME
development in the Western Province, a key economic region. By examining this
relationship, the research aims to provide insights for enhancing microfinance
programs and policies to better support SME growth and economic development
in the area. This study aims to explore the specific contributions of microfinance
services, including microcredit, micro-savings, and training programs, to the
growth and sustainability of SMEs in the region. Primary data was collected
through a structured questionnaire administered to a random sample of 162 SME
owners in the Western Province. The analysis employed descriptive statistics,
correlation, and multiple regression analyses to examine the relationships
between microfinance services and SME development. The findings reveal a
positive and significant relationship between microfinance services and the
growth of SMEs. Microcredit and micro-savings were found to have a substantial
impact on SME development, while training programs, although beneficial, did
not show a statistically significant effect. The study also revealed that the
entrepreneur's experience level partially mediates the relationship between
microfinance services and SME development. Furthermore, demographic factors
such as gender, age, and education level of the entrepreneurs were found to
moderate the effectiveness of microfinance services on SME growth. These
findings have important implications for policymakers and MFIs to enhance the
effectiveness of microfinance programs, suggesting the need for improved
infrastructure, favourable tax policies, and more accessible training programs to
empower SMEs and promote long-term economic sustainability in the region
