Impact of Microfinance Services on the Performance of Micro and Small Enterprises Special Reference to Maharagama Area

Abstract

Microfinance is an economic development tool that provides financial services such as small loans, savings, micro leasing, and money transfers to poor people. Micro and small-sized enterprises (MSEs) are recognized around the world for their critical role in driving grassroots economic growth and promoting equitable, sustainable development. The purpose of this study is to examine the impact of microfinance services on the performance of MSEs in the Maharagama area. A sample of 357 micro and small enterprises benefiting from Samurdhi Bank in the Maharagama area was selected using simple random sampling method. The Microfinance services - micro-credit, micro-savings, and micro-training were considered as independent variables while the enterprises’ performance was considered as dependent variable. Data were collected by issuing a structured questionnaire and correlation analysis, regression analysis and factor analysis were done to measure the impact of financial services on performance of MSEs. The results indicated that microfinance services significantly affect MSE performance. Specifically, micro-credit enhances operational capacity and growth potential, while micro-training improves managerial skills and business practices. These insights are valuable for policymakers, for formulating policies to foster economic growth, job creation and creating an environment conducive to the success of micro and small enterprises.