Impact of Microfinance on the Performance of Paddy Farmers in Dewahuwa Agricultural Area of Matale District in Sri Lanka

Abstract

This study examines the impact of microfinance services – specifically credit, savings, andinsurance – on the performance of paddy farmers in Dewahuwa, Matale District, Sri Lanka. Using a quantitative research approach, data were collected from 315 randomly selected paddy farmers through a structured questionnaire. The performance of farmers was assessed in terms of investment capacity, productivity, risk management ability, and financial stability. Regression analysis revealed that microfinance credit, savings, and insurance all had a significant positive impact on farmer performance. Credit and insurance enabled timely investments, better risk mitigation, and improved income stability, while microfinance savings contributed positively by encouraging disciplined financial habits, supporting reinvestment in farming activities, and offering a financial cushion during adverse conditions. This finding underscores the importance of strengthening the wealth–savings relationship: while savings help build wealth by providing a financial buffer and enabling investment, even modest savings efforts can foster better financial planning and resilience among farmers. The results highlight the need for microfinance institutions to enhance credit accessibility, insurance coverage, and savings mobilization through financial literacy programs, income-enhancing strategies, and tailored savings products. By refining these services, microfinance can better support the long-term growth, resilience, and sustainability of paddy farming in rural areas of Sri Lanka.