MPR: Elevated Interest Rate To Tighten Lending Conditions For SMEs

Following the Central Bank’s Monetary Policy Committee meeting, the MPR was raised from 26.75 per cent to 27.25 per cent.

In light of this, the director general of the Lagos Chamber of commerce and Industry, (LCCI) Dr. Chinyere Almona has stated that the recent decision to raise the benchmark interest rate to 27.25 per cent, will worsen an already difficult business climate in the country.

She emphasised that the elevated interest rate will further complicate the operating environment for manufacturers and SMEs businesses even as she highlighted the need for more effective strategies to tackle the underlying cause of inflation.

She pinpointed rising energy and transportation costs as key drivers of inflation while calling for urgent reforms in the energy sector to ensure a stable electricity supply for manufacturers and small and medium enterprises (SMEs).

Additionally, the chamber urged investments in transportation infrastructure, particularly rail and road networks, to mitigate logistics expenses and stabilise consumer market prices. It also recommended embracing compressed natural gas mobility to further enhance efficiency.

The LCCI stressed the importance of transparent foreign exchange management to curb speculation and stabilise the naira, arguing that a stable exchange rate is essential for moderating imported inflation, particularly for crucial commodities and raw materials.

Speaking further on mitigating the impact of MPR on SMEs and manufacturers, LCCI proposed establishing a fixed import duty exchange rate for a set duration.

It  concluded by calling on the Federal Government to adopt a comprehensive and sustained approach to combat inflation, focus on enhancing local production, stabilising energy and transportation costs, and ensuring coherence between monetary and fiscal policies.

Also speaking, the National president of Association of Small Business Owners of Nigeria, (ASBON) Dr. Femi Egbesola also stressed that the ongoing recapitalisation in the banking sector will improve lending capacity especially for the Small and Medium-Sized enterprises in the country even as he informed that some of the banks may prioritise capital accumulation over lending.

He confirmed that the mergers among smaller banks will increase the capital base for the landscape of small businesses while he expressed concerns about high interest rates on loans which could restrict access to credits.

He said, by prompting more mergers and acquisitions, smaller banks may struggle to meet requirements independently and this could create a highly competitive environment that may limit credit access for smaller enterprises.

ASBON boss identified the need for banks to capitalise the SMEs to significantly enhance its production capacity to achieve a $1 trillion economy by 2026 while stressing that this could also lead to a tighter lending condition, particularly for the MSMEs.

He posited that banks in their efforts to meet the capital requirement may prioritise capital accumulation over lending, emphasising that Nigeria’s economic growth is heavily reliant on fiscal and monetary policies and called for increased collaboration between both sectors.

He also stressed that the country’s current production levels are inadequate, urging investment in the informal sector to alleviate the foreign exchange market.

To reach a $1tn economy, he said, we must focus on boosting production capacity of SMEs, local firms and indigenous companies.

He noted that, bank recapitalisation was essential for strengthening the resilience and solvency of banks while stressing that well-capitalised banks are crucial for achieving the government’s vision of a $1 trillion economy.

The opportunities for real sector growth depend on the availability and affordability of financing, he said, noting that, partnership between banks and fintech companies must be fully harnessed to achieve this while also calling on regulators to understand the interconnected nature of financial services and how policies affect the overall system’s efficiency

Meanwhile, a Professor of Economics, Olusegun Ajibola, warned that, while the recapitalisation might strengthen the overall banking sector, it could also result in tighter lending conditions, particularly, for SMEs, adding that smaller banks may also find it difficult to meet the stringent capital requirements of their own.