Factors affecting SME financing:

Abstract

This study aimed at assessing the factors affecting SME financing, addressing the role of private commercial banks in Sri Lanka. Though identification on factors affecting SMEs are based on SME owner’s perspective in many scholars, the supply side perspective has not been covered. The literature was assessed to grasp knowledge being published by previous researchers pertaining to SME financing and banks’ role, and comprehensive theoretical framework analysis was also carried out to evaluate SME financing and the behavior of banks. A mixed method was used in the study where both quantitative and qualitative data were collected using semi structured interview mode. 150 bank credit officers who are involved in SME financing and credit units were selected to carry out the study where the scope is limited to the Colombo District. Both statistical analysis and thematic analysis were carried out based on the data being collected and it has been identified that there are significant relationships between the Lending policies of banks, Risks associated with banks, credit officers’ attitudes and perceptions towards the SMEs, Rules and regulations by governments for banks and Banks’ strategic motive and tendency for loan granting for SMEs by private commercial banks. Further, it has been identified that the relationship management between SME owners and banking staff is also a critical factor in loan granting propensity. The study contributes to suggest policy implications on revising the lending policies of Commercial Banks to look at customers in an objective manner without making decisions based on the preconceptions to fulfill the financing needs of SMEs.