Abstract:
Microfinance aims to uplift low-income earners by providing financial ser-
vices to transform their socio-economic lives. This study examined the crucial role of
microfinance in the economic development of Sri Lanka, specifically focusing on its
impact on the living standards of rural communities in the Ampara district. This study
selected microfinance credit facilities through dimensions such as loan amount, re-
payment ability, interest rates, and government intervention as the moderating varia-
ble to address the dearth of conclusive evidence of previous studies. The study, in-
volving 300 microfinance beneficiaries selected through random sampling, utilized a
structured questionnaire to ensure internal reliability through the Cronbach's alpha
test to gather primary data. Six hypotheses were developed to reach the objectives,
and descriptive, correlation, and regression analyses were employed for data analysis.
According to the descriptive analysis, most of the sample were male, above 40 years
old, passed the GCE Advanced level, and had an average family size of 2-5 members.
Regression results indicate a positive and significant impact of loan amount and re-
payment ability on the living standards of rural residents, while interest rates have a
negative and significant impact. The study contributes to existing literature by em-
phasizing the pivotal role of microfinance in emerging markets. Additionally, the
study examines the moderating variable of government intervention, revealing that
government involvement enhances the efficacy of the microfinance program, posi-
tioning it as a key economic actor, and accepting two hypotheses on government in-
tervention. This involvement bridges gaps by facilitating domestic microfinance in-
stitutions' access to regulations, procedures, and resources, highlighting the
multifaceted benefits of government assistance in the microfinance sector. This find-
ing will be useful for the Sri Lankan government to examine and identify the socio-
economic development of rural people.
