Financial Innovations for SMEs in Sri Lanka

Abstract

In Sri Lanka, SMEs play a significant role and are more constrained by different obstacles, and limited access to finance is a significant problem. The purpose of this paper was to investigate financial innovations to develop SMEs in Sri Lanka. The study was based on primary and secondary sources. Primary data were from SMEs' owners or managers gathered by using survey methods. The sample comprised 63 SMEs in Sri Lanka operating different kind of industries. The finding reveals that commercial banks' loans are the most critical source of SME financing, even though the SME has many difficulties in dealing with banks. Leasing financing and loans from other financial institutions are less important than other financial sources. Equity financing, venture capital, and factoring are uncommon among SMEs in Sri Lanka. Indeed, there was evidence that SMEs in Sri Lanka still preferred to use traditional financing sources instead of innovative financial sources. Furthermore, SMEs do not have sufficient knowledge about innovative financial authorities, and financial institutions fail to provide adequate support for SMEs. Promoting programs to develop managerial and IT skills for SMEs, establishing particular banks for SMEs related to the small community, and other financial such as factoring and venture capital can be developed to reduce SMEs' financing problem in Sri Lanka.