MSMEs, Analysts Say CBN Rate Cut Yet To Ease Credit As Private Lending Falls By N537.6bn

Small business owners and market analysts have said the Central Bank of Nigeria’s (CBN) interest rate cut has yet to make credit cheaper or easier to access, after private sector lending fell by N537.6 billion in September.

The president of the Association of Small Business Owners of Nigeria (ASBON), Dr. Femi Egbesola, said the rate cut had not yet translated into affordable and accessible credit for Micro, Small and Medium Enterprises (MSMEs). He described the fall in private sector credit as a worrying signal.

“The reality for many MSMEs is that the CBN’s rate cut has not yet translated into affordable, accessible credit. This is a worrying signal, although the aggregate figures alone do not explain why lending declined,” he said.

He said small businesses still face high borrowing costs, stringent collateral requirements and short repayment periods that make bank loans inaccessible.

“For small businesses, high borrowing costs, stringent collateral requirements and short repayment periods remain major barriers. Banks must also consider credit risks, but viable businesses should not be excluded simply because they lack landed property or other conventional collateral,” he said.

According to him, the credit squeeze is crippling MSMEs’ ability to operate and expand.

“The credit squeeze means businesses struggle to purchase raw materials, maintain production, invest in equipment and employ more workers,” Egbesola noted.

He said fintechs are filling the gap with quick loans, but their model is not suitable for long-term industrial growth.

“Fintech loans offer speed and convenience, but their short tenures and potentially high costs may not be suitable for financing factories or long-term expansion,” he said.

Egbesola urged the CBN to go beyond rate cuts and adopt structural measures.

“I urge the CBN to strengthen credit-guarantee schemes, expand cash-flow-based lending and movable-asset financing, and introduce measurable targets and incentives for bank lending to viable MSMEs,” he said.

He also called for transparency in bank lending to small businesses.

“Banks should be required to report transparently on their MSME lending performance, with appropriate regulatory consequences for persistent non-compliance. The objective is not to compel reckless lending, but to make productive businesses bankable and ensure that monetary easing translates into investment, jobs and economic growth,” Egbesola added.

Banks accused of dragging feet

The chief operating officer of InvestData Consulting Limited, Mr. Ambrose Omordion, said banks appear not to be aligned with the CBN’s strategy of making funds cheaper to boost Gross Domestic Product.

“Anywhere in the world, banks are the engine of any economy. Nigerian banks are sitting on liquid funds that should be lent to the public, but they are yet to understand how to do that lending because they have not been doing enough lending as before,” Omordion said.

He said fintech banks have taken over the retail lending space, offering quick loans without demanding high collateral, a model traditional banks are struggling to replicate.

Omordion said many deposit money banks prefer investing in risk-free treasury bills and remain cautious because of past experience with high non-performing loans, especially from exposure to the oil and gas and telecommunications sectors.

He urged the CBN to enforce compliance with the rate cut.

“The CBN cut rates to boost the economy and push banks to lend to the real sector, but banks are dragging their feet in implementing the rate cut. The CBN has the hammer and can sanction any bank that defaults,” he said.

He said increased lending would drive GDP growth, as no government can drive growth alone without the private sector.

“Banks have the money and can drive new sectors. We want lending to expand so that industries and enterprises can produce more when they have access to cheaper funds,” he said.

Omordion added that the entry of foreign banks, such as J.P. Morgan setting up a merchant bank in Nigeria, shows the potential in the economy and should push local banks to develop better lending strategies.

The numbers

Data from the CBN show that private sector credit dropped to N83.93 trillion in September from N84.47 trillion in August, a decline of 0.64 per cent. The figure is still about 15.7 per cent higher than the N72.53 trillion recorded a year earlier.

The decline followed the decision of the Monetary Policy Committee (MPC) in September to cut the Monetary Policy Rate (MPR) by 350 basis points to 23 per cent, the largest reduction in the benchmark rate since December 2006. The MPC retained the Cash Reserve Requirement (CRR) for commercial banks at 45 per cent.

The CBN data do not explain whether the fall reflects weaker loan demand, tighter lending conditions, repayments or other factors. A lower benchmark rate can also take time to filter through, as actual lending depends on banks’ funding costs, risk assessments and borrowers’ ability to repay.