Abstract:
The small scale enterprises play an important role for economic development of any
nation. They create employment for the majority of the population and also contribute
to the gross national product. In order for them to fulfill the above roles, they require
financial support. However, SMEs in the every nation have continued to complain of
lack of financial support from financial lending institutions.
The main objective of this study is an exploring the challenges of SMEs in accessing
credit from financial institutions specially state banks and how such challenges can be
overcome. 333 SMEs that are affiliated to bank of Ceylon, people's bank, regional
development bank and other financial lending institutions in Batticaloa district were
studied under the survey. To collect primary data for the study set of questionnaire
has distributed among the small business owners. Data were collected through the
questionnaires with random sampling method and collected data were. presented by
tables, figures, percentages, pie charts, bar charts and frequency tables, mean, median,
mode, maximum, minimum, standard deviation and cross tabulation analysis were
adopted to analyze variables.
Result obtained show that small scale enterprises faced more challenges with financial
lenders due to strict collateral requirements and lack of proper financial records and
statements demanded by the lenders, high business risk and cost of credit are faced by
SMEs in high level. Therefore it is recommended that financial institutions set more
flexible, affordable and attractive requirements in financing micro and small
enterprises.
In order to make it easier for SMEs to begin to access funds from financial
institutions, government must enact laws and put in place policies that are supportive
to the sector. Interest rates charged by financial lending institutions should be
differentiated from that larger firms and should endeavor to improve their capacity on
the assessment of risk. On the other hand, business association should take a leading
role in educating their members about the importance of keeping proper records of
account
