The Impact of Microcredit on the Economic Development of the Small Entrepreneurs: Evidence from Southern, Sri Lanka

Abstract

Microcredit has become one of the most popular development strategies in developing countries as it has been instrumental in the success of the small entrepreneurs. As a part of a survey conducted to examine the contribution of one of the major microcredit programs in the Southern province, Sri Lanka, this study endeavors to examine the impact of microcredit programs on the economic development of the small entrepreneurs in the Southern Province, Sri Lanka. Four variables were selected to examine how microcredit influences the economic development of small enterprises: increase in the employment; new business commencement, developing the existing business, and generating considerably higher income. The sample of the study consisted of 584 small entrepreneurs who have received the microcredit from one of the leading projects in Southern Province, Sri Lanka. A formal questionnaire was developed to address the economic developments of the small entrepreneurs selected in the survey. Kruskal Wallis test was applied to examine whether the frequency test results differed among three districts. Study results revealed that microcredit have significantly impacted to increasing the income of the small entrepreneurs regardless of the district. In addition, it was found that the impact of microcredit on employment generation, commencement of new businesses and development of the existing business is at moderate level.