Impact of Microfinance Services on Growth of Micro Small and Medium Scale Enterprises: Empirical Evidence from Micro, Small and Medium Scale Enterprises in Kalutara district

Abstract

Micro, Small and Medium Scale Enterprises (MSME) sector is identified as an important strategic sector to create economic and social sustainability in Sri Lanka. This sector is playing a vital role in economic growth, regional development, employment generation and poverty reduction in the emerging economy of Sri Lanka. The Micro Finance Institution (MFI) has been developed a variety of services to assist the financial and non- financial needs of the entrepreneurs including credit, saving, leasing, insurance facilities, and training programs. The sample has been derived from Kalutara district and 100 numbers of respondents have been selected through the random sampling method. Primary data has been collected and administered through a questionnaire. The data were analyzed using descriptive analysis, correlation coefficient analysis, Regression analysis, Baron and Kenny mediator analysis method and Sobel test. The findings revealed the positive relationship between Microfinance services and the growth of MSMEs. Mediator analysis and the Sobel test identified that experience level partially mediates the relationship between the microfinance services and the growth of MSMEs. Study recommends to government to implement different tax policies for this sector, increase the investment on infrastructure in rural areas and this enables MFIs to maintain the lowest rate of interest, increase their outlets in rural areas and to deliver more effective on training programs in order to empower the MSMEs in Sri Lanka to achieve long term sustainability in Sri Lanka.