Abstract:
This study explores the impact of state banking services on rural livelihood
development in Sri Lanka, specifically focusing on the Polonnaruwa District. This
district was selected due to its predominantly agrarian economy and the persistent
challenges of financial exclusion, despite the widespread availability of state banking
facilities. To address this gap, the study examines how four dimensions of banking
services—credit and loans, savings and deposit services, digital banking, and interest
rates with repayment flexibility—affect rural livelihoods in terms of income growth,
agricultural productivity, employment, and financial inclusion. A quantitative
research design was employed, and data were collected through structured
questionnaires from 100 respondents, including farmers, small business owners, and
households. The reliability and validity of the instruments were confirmed using
Cronbach’s alpha (>0.90) and KMO statistics (0.754). Descriptive statistics,
correlation, and regression analyses were performed using SPSS. Findings indicate
that credit and loan facilities (β = 1.034, p < 0.01) have the strongest positive effect
on rural livelihood development, followed by savings and deposit services (β = -
0.035, p < 0.05) and interest rate policies (β = 0.000, p < 0.05). Digital banking
showed only a marginal effect, constrained by low digital literacy and infrastructure
limitation. The study concludes that while state banking services significantly
contribute to rural livelihoods, their effectiveness depends on improving digital
adoption, enhancing financial literacy, and designing borrower-friendly credit
schemes. This research provides empirical evidence for the Sri Lankan context and
offers practical insights for inclusive financial policy-making.
