The Role of Micro Finance Institutions on the Development of Micro Enterprises (MEs) in Sri Lanka

Aim: The study investigates the impact of microfinance practices on the growth of micro-enterprises (MEs) concerning the Central Province, Sri Lanka. It has been discovered that the growth of microbusinesses is dependent on gender, age, education level and nature of the industry.

Design/Methodology/Approach: Multinomial Logistic Regression models was applied in this study. Multinomial logistic regression is frequently used for the analysis of categorical response data with continuous or categorical explanatory variables. Parameter estimates are usually obtained through direct maximum likelihood estimation. Two models were used to test the hypothesis concerning the three practices, micro-credit, training and advisory services. Primary data were obtained from 200 registered microenterprises (ME) owners in the Central Province through convenience sampling methods. Data collection was conducted using a self-structured questionnaire.

Results and Conclusion: According to the results, microfinance practices have a significant relationship with the development of MEs, while Microcredit and advisory services have a significant impact on the development of MEs. Training programmes have not significantly impacted on the development of MEs. The research concludes that microfinance as a whole educates and helps to develop micro financed micro-scale enterprise businesses and positively impact those families in the Central Province, Sri Lanka.

Research limitations/implications: Data were limited to select only one province in Sri Lanka out of nine using a self-structured questionnaire. Also considering the response rate and sample size, there are limitations to generalize the findings. This research was restricted to three variables micro-credit; Training and Advisory services impact of other factors that can influence the growth of MEs did not fall under the scope of this study.

Originality and Value: The impact of microfinance practices on MEs growth in Central Province in Sri Lanka is an under-researched area of study. The findings of this study can act as a guideline in the future for decision-makers to identify factors that influence more on MEs development.