An empirical investigation of small and medium enterprises access to finance: The case of an emerging economy

A survey of the literature dealing with financing Small and medium sized enterprises (SMEs) indicates there is a significant gap in knowledge of the determinants of access to finance by the SMEs in developing countries, including Sri Lanka. Therefore, this study examined what determines access to bank finance in Small and medium sized enterprises in Sri Lanka. The data utilised in this research was obtained from the Investment Climate Survey carried out by the World Bank for Sri Lanka. Hypotheses for this study have been derived utilising eleven factors which affect credit worthiness which have been identified in the previous research. Since the variables are nominal variables, Chi square statistic is chosen to assess whether the determinants of access to credit is significantly different among the credit rationed firms and not rationed firms. The chi square results indicated that, education of the entrepreneur and having membership with business association are associated with access to bank finance. Somewhat unexpectedly, all other factors identified in the study did not show any association with access to credit. In terms of policy, the findings of this dissertation will provide banks, training institutions and policy makers with new insights on investigation of loan evaluation process, tailoring new training programmes for entrepreneurs and developing relationships with business associations.