Small enterprises are struggling to expand business and inject new investment to rural economies because credit is too expensive and not easily accessible. Small enterprises are struggling to expand business and inject new investment to rural economies because credit is too expensive and not easily accessible. Unable to compete with bigger firms with secure collateral, they are left dependent on informal sources for finance with varied interest rates.
High cost of financing is a major reason why rural enterprises growth has been stymied.
Sri Lanka however has a wide web of rural finance institutions from rural development banks and other semi formal financial institutions like Samurdhi that offer credit to small rural firms.
However a joint “Investment climate assessment” by World Bank and the Asian Development Bank (ADB) found almost 80 performance of rural investment has been financed from informal sources like cash in hand, family, friends and moneylenders.
Interest rates in rural areas range from 12 to 30 percent since credit from informal sources are expensive.
Access to formal sector finance is very low with commercial banks a