Providing Financial Aid for Small Industries

Abstract

The expectation of each government that came into power since the independence aimed at uplifting the living standards of people, increasing the mode of income, uplifting employability and then targeting the development via various development projects. In the closed economy that existed in 1978, many industries emerged which used local raw material, and due to that various sectors developed. However, after 1978, with the open economy, local industries faced a massive collapse, imported goods were available in the markets than the local goods. Developing small industries in a country like Sri Lanka will facilitate the development process. For these the physical and human resources should be utilized effectively. By looking at the 1971-1988/89 social conflicts, it is visible that the cause was the lack of contribution of the most important part in the work force in economic and social development. Therefore, the youth should be facilitated to commence businesses by providing them with support that can be used for development. However, it was seen that they face issues in starting and continuing small industries. It is seen that these small industries collapse or remain at the same level shortly after they start. When analyzing the reasons, focusing on informal financial investments was identified as the main cause. Therefore, those who do small industries focus more on informal financial investments. Do they have unique reasons? What are the results they face when going into informal financial investments? A sample of 105 participants from Hingurakgoda Divisional Secretariat division were given questionnaires. 20 entrepreneurs were met and data was received. Data was also obtained from financial suppliers. Secondary data was collected from books, journals, and previous research. Internet was used for other important sources. In analyzing the data, it was revealed that the small industries get financial loans with less number of conditions from the informal sector. The percentage was 42%. And the formal financial investment was 27% and semiformal -31%. When taking formal and semi formal into account, it is 58%. Semi formal and informal as a percentage is 73%. The reasons are; getting loans in a short time, closeness to entrepreneur, lose bail conditions, the acceptance of any valuable assets as bail by the informal sector. The special reason for the small industries to reach informal financial sector are: engaging in traditional business, lack of proper planning in business, less attention of formal sector for small industries, waiting for a long time to get loans from formal sector and lack of flexibility in bail. Due to these reasons small industries still reach informal sector. The limitation of the development of the business conducted by obtaining loans from informal sectors is that they have to pay a huge sum of interest to the lender. Then, the business lacks financial stability and they seek a loan in informal ways. Getting closer to entrepreneurs, improving the functioning of formal sector, spreading them in regional levels, classification of loans, changing the interest rates, formalizing formal sector to get loans in short time, addressing the need of officers, making the tasks efficient are the steps to support the small industry entrepreneurs to reach formal sector.