The Financial Information Gap: The Financial Intermediaries And The Small and Medium Enterprises In Sri Lanka

Abstract

SME is the backbone of all developed and developing nations. So the development of this sector is paramount important for any country irrespective of their level of development. In this process, SME must gain satisfactory support from Financial Intermediaries through providing necessary financial facilities. However, the major obstacle for the development of SME in Sri Lanka is that, the lack of financial assistance of financial intermediaries since, there is a financial information gap exists between these two parties of Financial Intermediaries and SME entrepreneurs. The main objective study is to identify the reasons for prevailing financial information gap and make possible suggestions to minimize that gap in order to strengthen the backbone of the economy. Sample selection of the study confines to the SMEs cover within the scope of the definition for SMEs by the Industrial development Board of Sri Lanka. Sixty SMEs comprise thirty manufacturing enterprises, twenty service-providing enterprises and ten wholesale and retail enterprises located at Colombo administrative district and Horana AGA Division and fifteen Financial Intermediaries (commercial banks) were selected. With the help of quantitative research strategy, researchers concluded that, while SMEs give priority to produce information relating to Income Statement and Balance Sheet where as Financial Intermediaries prioritizes Cash flow information when evaluating loan applications. So, there is a Financial Information Gap exists between SMEs and Financial Intermediaries in Sri Lanka.