Small and Medium Enterprises (SMEs) in Nigeria are facing mounting financial pressure following the Central Bank of Nigeria’s (CBN) decision to retain the Monetary Policy Rate (MPR) at 27.5%.
The decision, announced after the latest Monetary Policy Committee (MPC) meeting, has sparked concerns among business owners who rely on credit facilities to sustain operations.
According to the MPC communique, the decision to maintain rates was driven by “recent macroeconomic indicators that suggest improved market stability”, particularly in the foreign exchange market and inflation trends.
“The Committee noted that core inflation remains a concern, even as recent data indicates a slowing trajectory. Food prices continue to exert upward pressure, and thus, premature monetary easing could reverse recent gains,” the CBN communique stated.
The MPC voted unanimously to keep rates steady, with CBN Governor, Olayemi Cardoso, stating that while inflation showed early signs of easing, it was “too early to start considering rate cuts.”
SMEs speak out
Speaking with entrepreneurs in Abuja on Tuesday, many SMEs expressed frustration to Nairametrics over their inability to access loans or service existing debts due to the high-interest rates.
- Mrs. Nkechi Levy, an entrepreneur, highlighted her struggles in securing affordable credit to support her business. She noted that while financing is crucial for growth, the high cost of borrowing has made it increasingly difficult to sustain operations.
“I don’t really know what to tell you. But what I can say is that collecting loans from banks is not easy. The interest rate is too high for me and many of us. How do they want us to survive or continue our business?”
- Similarly, Jude, a shop owner at Wuse Market, lamented that with the interest rate at 27.5%, most small businesses will be unable to access much-needed funding.
“How do we grow when loans are unaffordable? Many of us rely on these facilities to keep our businesses afloat, but the cost is just too high,” he said.
Experts weigh in on the impact of the CBN decision
Economic analysts have also reacted to the CBN’s decision, highlighting its implications for business sustainability and economic growth.
- Dr. Muda Yusuf, the CEO of the Centre for Promotion of Private Enterprises (CPPE), acknowledged that while maintaining the interest rate provides temporary relief, it does not solve the fundamental problem of expensive credit.
“The impact is that it will bring some relief to businesses, especially those that are already indebted to banks. At least, interest rates are not increasing further,” Yusuf noted.
“However, the desire of many businesses is that the rate should be reduced. It is not just about pausing the rate but actually decreasing it because servicing loans at nearly 30% interest is excruciating, burdensome, and outrageous.”
- He further explained that businesses that secured loans two to three years ago—when the interest rate was around 20%—are now struggling under the weight of increased borrowing costs.
“Those who are already indebted are the worst hit because they cannot walk away from the loan. Fresh borrowers can choose whether or not to take a loan, but existing debtors are stuck. We hope that at the next MPC meeting, there will be some relaxation of these rates. We want to see a drop in the MPR and the Cash Reserve Ratio (CRR),” he added.
- Dr. Adam Abudu of the Society for Peacebuilding and Economic Advancement echoed similar sentiments, arguing that maintaining the interest rate at 27.5% does little to curb inflation but significantly stifles business growth.
“MPR at 27.5% has no real impact on inflation control. Instead, it is making life difficult for entrepreneurs. Businesses need access to affordable credit to create jobs and expand investments. The current policy discourages borrowing and, by extension, hinders economic growth,” he said.
What’s Next for SMEs?
As businesses grapple with the reality of high borrowing costs, industry stakeholders are calling on the CBN to reconsider its approach in the next MPC meeting. Analysts believe that a lower interest rate would stimulate economic activity, encourage investments, and boost job creation.
For now, Nigerian businesses must find alternative means of financing their operations, as the cost of traditional bank loans remains prohibitive.
