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

Abstract

Small and Medium Enterprises (SMEs) play a vital role in the economy by contributing to Gross Domestic Product (GDP) and job creation. To maximize the potential of SMEs, financial support is essential to help these businesses overcome financial challenges. This study aimed to investigate the impact of financial institutions' services on the performance of non-agricultural SMEs in Sri Lanka. Four independent variables were considered in the study: debt financing, training, technology support, and monitoring and supervision. The business performance of SMEs was identified as the dependent variable. Previous research suggests that these variables have a significant impact on SME performance. A stratified random sampling method was used to collect data from SMEs operating in seven districts in Sri Lanka namely Colombo, Galle, Matara, Kurunegala, Badulla, Rathnapura, and Kegalle. After identifying and removing any incomplete or inconsistent responses, 798 completed questionnaires were analyzed using univariate analysis, correlation analysis, and multiple linear regression analysis. The ultimate results showed that all four independent variables had a positive impact on SME performance. In conclusion, based on these findings, the research team recommends that financial institutions provide efficient services to improve the performance of SMEs and maintain healthy debt servicing practices.