Relationship between access to trade finance and performance: moderated by internal structural weaknesses in small and medium enterprises in Sri Lanka

Abstract

Inadequate access to trade finance is considered as a liability of newness of an enterprise. The inability to obtain adequate access to finance from the formal banking sector is a key constraint for the growth and development of Small and Medium Enterprises (SME) carrying out international trade exports in Sri Lanka. The problems faced by them in accessing adequate trade finance remain unaddressed, hindering their growth, market performance and development. The effect of specific underlying factors on accessing adequate trade finance, by these niche SMEs are largely unknown, creating a considerable gap in the existing knowledge. Systematic review of literature indicates that internal structural weaknesses was a factor affecting financial access by SMEs. This research study therefore, is aimed at conducting comprehensive field research exploring the relationship between access to trade finance and SME export performance with the moderating effect of the internal structural weaknesses of the SMEs themselves. The research method used was survey by Google Form questionnaire. The study sample included 100 owners/ managers from the Sri Lankan export oriented Small and Medium Enterprises (SME). Upon descriptive analysis of data, it was found that 97 percent of the SME exporters considered the impact of inadequate access to trade finance had a notable or major impact on their export performance. Correlational analysis confirmed a significant positive relationship existed between access to trade finance and SME export performance. However, moderated regression analysis revealed that internal structural weaknesses of the SMEs had a significant moderating effect on the relationship between access to trade finance and the export performance of the SMEs in Sri Lanka. It is recommended that urgent steps be taken in reducing such intrinsic weaknesses to help the export-oriented SMEs in Sri Lanka gain better access to finance thereby enhancing their exports performance in international markets.