In its recent Monetary Policy Committee (MPC) meeting held on February 20, 2025, the Central Bank of Nigeria (CBN) decided to retain the Monetary Policy Rate (MPR) at 27.5 percent.
This decision has significant implications for Small and Medium Enterprises (SMEs), particularly concerning their borrowing costs, operational expenses, and overall growth prospects.
Small and Medium Enterprises (SMEs) in Nigeria are navigating a complex economic landscape characterised by inflationary pressures and recent statistical adjustments, such as the rebasing of the Consumer Price Index (CPI).
This rebasing aims to provide a more accurate reflection of current consumption patterns by updating the basket of goods and services used to measure inflation.
Despite the technical adjustments from the CPI rebasing, SMEs continue to grapple with several persistent challenges:
High borrowing costs, elevated interest rates make it difficult for SMEs to access affordable credit, hindering their capacity for expansion and job creation.
Operational expenses, Inflation contributes to rising costs in raw materials, transportation, and energy, squeezing profit margins and affecting competitiveness.
The retention of the MPR at 27.5 per cent directly influences commercial lending rates, which have escalated to between 35 per cent and 39 per cent.
Such high-interest rates pose substantial challenges for SMEs that rely on bank loans to finance their operations and expansion plans.
The elevated cost of borrowing makes it increasingly difficult for these enterprises to access affordable credit, thereby hindering their ability to invest in growth opportunities.
Entrepreneurs across Nigeria have expressed frustration over the high borrowing costs resulting from the maintained MPR.
For instance, Mrs. Nkechi Levy, an entrepreneur, highlighted her struggles in securing affordable credit to support her business, noting that while financing is crucial for growth, the high cost of borrowing has made it increasingly difficult to sustain operations.
Similarly, Jude, a shop owner at Wuse Market, lamented that with the interest rate at 27.5 per cent, most small businesses will be unable to access much-needed funding.
Economic analysts have also reacted to the CBN’s decision, highlighting its implications for business sustainability and economic growth.
The CEO of the Centre for Promotion of Private Enterprises (CPPE), Dr. Muda Yusuf acknowledged that while maintaining the interest rate provides temporary relief, it does not solve the fundamental problem of expensive credit.
He noted that servicing loans at nearly 30 per cent interest is excruciating, burdensome, and outrageous.
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.
In summary, while the CBN’s decision to maintain the MPR at 27.5% aims to stabilise the economy, it presents significant challenges for SMEs by increasing borrowing costs and operational expenses.
Addressing these concerns is crucial for fostering a more conducive environment for SMEs, which are vital to Nigeria’s economic growth and employment generation.
