The Association of Small Business Owners of Nigeria (ASBON) has welcomed the Central Bank of Nigeria’s (CBN) reduction of the Monetary Policy Rate (MPR), describing it as a long-awaited development that could ease pressure on small and medium-sized enterprises (SMEs).
However, ASBON National president, Dr. Femi Egbesola, said the impact of the rate cut would depend largely on whether commercial banks translate the reduction into lower borrowing costs for businesses.
Egbesola spoke in an interview with LEADERSHIP while reacting to the CBN’s decision to cut the MPR by 350 basis points.
According to him, the development was particularly significant for the SME community, which has been grappling with high borrowing costs and difficult operating conditions.
“For us in the SME community, it’s a welcome development. This is one of the prayers we’ve been having for some good time now. And I think it’s good that it’s happening in our time,” he said.
He added that the rate reduction could also indicate that the government’s economic reforms were beginning to produce some macroeconomic gains, particularly as inflationary pressures ease.
“It also shows that inflation is actually driving down. Government is actually making gains from the macroeconomic activities and reforms,” he said.
However, the ASBON chairman stressed that the reduction in the benchmark rate should not remain merely a policy announcement, insisting that its real test would be its impact on the cost of accessing credit.
“What is more important is translating to lower interest rates for SMEs. One thing is to have it on paper, on record that interest rate has been slashed or MPR has been slashed. It’s another thing for the bank to translate it to actually lowering the cost of accessing funds,” he said.
Egbesola complained that commercial banks have historically responded much faster to upward movements in the MPR than to downward adjustments.
“Whenever there’s an increase in MPR, you see that the banks, within 24 hours, jack up their interest rates. You see it reflected even in those who already have existing credit with the bank,” he said.
He therefore urged banks to respond promptly to the latest reduction by reviewing their lending rates, saying SMEs should be allowed to feel the benefit of the monetary policy adjustment.
“When there is a lowering of interest rates, it is not matched with immediate action. We are looking forward to that to happen,” he added.
Beyond borrowing costs, the ASBON chairman said the government must address the broader challenges confronting businesses if the MPR reduction is to translate into meaningful economic relief.
“For us also, what we need go beyond just interest rates,” he said.
According to him, cheaper credit alone would not be sufficient if businesses continue to face high energy and electricity costs.
“If interest rates go down and conditions of being in business is still very harsh, it will rough up the benefit of the interest rates. So, if you have a lower interest rate and we still have high cost of energy, we still have high cost of electricity…”
He argued that SMEs require a combination of lower financing costs and a more favourable operating environment to enable them to expand, create jobs and contribute more effectively to economic growth.
The CBN’s decision to cut the MPR therefore presents an opportunity for banks, policymakers and other stakeholders to ensure that the gains of monetary easing are transmitted to the real sector, particularly the millions of small businesses that depend heavily on credit to finance their operations.
For ASBON, the immediate expectation is that the lower benchmark rate should lead to cheaper credit, while complementary measures should reduce the other costs that continue to make doing business difficult for SME.
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