ALTERNATIVE APPROACHES FOR ADDRESSING THE CREDIT ISSUES OF MICRO AND SMALL ENTERPRISES – A CASE STUDY IN SRI LANKA

Agro processing micro and small enterprises (MSEs) are deemed to bring economic benefits to urban and rural communities. Low survival rate of start-ups is a serious issue hampering the growth of this sector. Business development Services (BDS) are claimed to improve the performance of MSEs. This study examined how BDS are used to address the business issues in general and credit issues in particular with special reference to novel approaches adopted by non-governmental development organizations. This is an exploratory case study with special reference to innovative approaches adopted by Practical Action Sri Lanka (a development NGO) and the International Centre for Underutilised Crops (ICUC). For the purpose of sampling, Kandy, Nuwara eliya, Galle, Kurunegala, Badulla and Puttalam districts were considered as the physical boundary of the case study. Data was collected from over 1,000 BDS non-recipients through a series of workshops and 44 BDS recipients including seven group enterprises through a primary survey. In- depth interviews were conducted with their stakeholders, including credit institutes as an important part of the study. Results indicated that, despite the reduced failure risk, credit institutes are reluctant to accept business development services as collaterals unless the BDS providers directly intervene in the loan recovery process. However credit institutes preferred granting BDS recipients over non-recipients. Thus Practical Action and ICUC joint hand with a micro credit institute (Sarvodaya Economic Enterprise Development Services) to further examine the effectiveness of BDS as collaterals.