Bank loans to agricultural SMEs and the performance of the agriculture sector in Sri Lanka

Abstract

The objective of this study is to examine the impact of bank loans for agricultural SMEs on agriculture sector performance, specifically assessing how this financial support influences the overall performance of the agricultural sector in Sri Lanka. Data for both dependent and independent variables were meticulously sourced from the annual reports of the Ministry of Finance, covering the study period from 2012 to 2021. The study evaluates the performance of 16 distinct agricultural economic activities, each contributing uniquely to Sri Lanka's economy. The descriptive statistics, particularly the mean values, highlight intriguing aspects of Sri Lanka's agricultural sector. Notably, there is a considerable disparity in the average gross domestic production, with marine fishing and marine aquaculture emerging as highly productive. At the same time, the growing of other beverage crops demonstrates a significantly lower contribution. Crucially, the regression analysis affirms a positive and statistically significant impact of bank loans to agricultural SMEs on the performance of the overall agricultural sector in Sri Lanka. This substantiates the fundamental need for adequate bank loans for agricultural SMEs to empower and enhance the performance of the entire agriculture sector. As this study sheds light on the positive correlation between bank loans for agricultural SMEs and agricultural sector performance, it underscores the importance of tailored public policies concerning loan proportions and amounts for distinct economic activities within the agriculture sector.