The Impact of Services Offered by the Financial Institutions on Business Performance of SMEs in Non- Agricultural Sector in Sri Lanka

Abstract

Small and Medium-scale Enterprises (SMEs) can be recognised as the backbone of an economy, as SMEs provide an enormous contribution to the GDP and employment creation. To maximise the contribution made by SMEs, the support of financial institutions is a critical factor for strengthening those ventures as they are usually running with financial difficulties. This study was directed to determine whether there is a significant impact of services offered by the financial institutions on the business performance of SMEs in non- agricultural sector in Sri Lanka. The study examined four independent variables to represent the support of the financial institutions through debt financing, training facility, technology facility, monitoring and supervision. Meanwhile, the business performance of SMEs was identified as the dependent variable of the study. It has been observed that there is a significant impact of independent variables on the dependent variable based on the previous literature. Data were collected through a structured questionnaire from SMEs operating in seven districts in Sri Lanka, namely Colombo, Galle, Matara, Kurunegala, Badulla, Rathnapura and Kegalle. The stratified random sampling method was applied to collect data from respondents. The Statistical Package for the Social Sciences (SPSS) version 23.0 was used to analyse the primary data gathered through the questionnaire. After removing outliers of total collected responses, 798 completed questionnaires were processed to perform univariate analysis, correlation analysis and multiple linear regression analysis for analysing the data. The findings of the study revealed that all the four variables- debt financing, training facility, technology facility, monitoring and supervision- have significant positive impacts on the business performance of the non- agricultural SMEs based on the responses of the selected sample. In conclusion, the research team has put forward recommendations for the financial institutions to provide efficient services that will be highly beneficial for improving the business performance of SMEs and enable financial institutions to maintain healthy debt servicing practices.

Keywords: SMEs, Financial Institutions, Financial Services, Business Performance