Access to finance for small and medium-sized enterprises: the case of Sri Lanka

Submission note: A thesis submitted in total fulfilment of the requirements for the degree of Doctor of Philosophy to the School of Economics, Faculty of Business, Economics and Law, La Trobe University, Bundoora.

Although, the financing gap for SMEs is more pervasive in developing economies, there is a vacuity of research that examines the situation in these countries. Hence, the purpose of this study is to investigate the access to bank finance and related issues in the SME sector of Sri Lanka. The empirical evidence for this study is drawn from the Sri Lanka enterprise survey data set obtained from the World Bank. The logistic regression model was used to empirically test the literature-driven hypotheses. However, before proceeding to the logistic regression results, preliminary chi-square results are presented in order to obtain a better understanding of univariate differences and associations in the data. This study finds that access to bank finance is largely determined by ownership type of the firm, industry sector, location of the firm, availability of audited financial statements and the perception of the owner-manager on access to finance. This study also reviews several capital structure theories and human capital theories and finds that these theories provide little support in understanding the financial behaviour of SMEs in Sri Lanka. This dissertation contributes to the understanding of the access to finance in the SME sector in three aspects. First, to the knowledge of the researcher, this study is the first examination of the access to finance by SMEs in Sri Lanka. Second, this study brings together research from several disciplines to develop a conceptual framework for understanding the SME financing situation. Third, the study increases knowledge of the perceptions of SME owner-managers regarding their access to finance. In terms of policy, the findings of this dissertation provide policy makers with new insights on how to tailor macroeconomic policy and regulations to help overcome the finance gap in this important sector of the economy. In particular, policy makers can make informed decisions that are based on this research to articulate policies, to develop training programmes, and to design support systems that can positively address the factors affecting access to credit to SMEs in Sri Lanka. The findings of this study can be replicated in other developing countries as well.