Abstract:
Small and Medium Enterprises (SMEs) are the catalyst for economic growth in most
economies thus, this study sought to examine factors that hinder the effectiveness of
bank credit in enhancing the perforrnance of SMEs in Matara District. Specifically, it
investigated whether credit terms, loan utilization and managerial competence affect
the effectiveness of bank credit in enhancing the performance of SMEs in Matara
District. Specific objectives of the study were; to establish the influence of credit terms
on the effectiveness of bank credit in enhancing SME performance. To find out how
bank loan utilization influenced the effectiveness of bank credit in enhancing SME
performance in Matara District and to examine the influence of managerial competence
on the effectiveness of bank credit in enhancing SME performance in Matara District.
Data were collected from primary sources which were collected from Matara district
five type of bank 290 customers, while frequency distribution and multiple regression
analysis were used for analysis of data. Simple random sampling technique was
employed in selecting the 290 SMEs that constituted the sample Size of the research. It
is recommended that Banks should review their interest rate downwards and also share
best practices with their SME customers especially on the efficient use of loans; this
will boost their productivity and support SMEs in Sri"I-pnka. The study concluded that
there is a positive impact between credit terms, loan utilization and managerial
competence on SMEs performance. It means, if the bank increases the rate of granting
SMEs loan facility, it helps to make the success of the SMEs. Then, it is recommended
for the banks to increase the loan amount to SMEs for developing the SMEs to
accelerate the economic growth.
