No respite for MSMEs with new MPR

After the Monetary Policy Committee (MPC) meeting last Monday, Godwin Emefiele, Nigeria’s central bank governor, announced a one percent rise in the monetary policy rate from 11 to 12 percent.

MPR is the benchmark interest rate in the country. It is the rate at which banks lend to deposit money banks.

Emefiele had said that extra liquidity in the economy did not translate into more lending and cited inflation, which was at a three and half year high of 11.4 percent, as a key factor, as it was above the bank’s target of six percent to nine percent.

However, the rate hike does not provide any respite for operators of micro, small and medium businesses, who have been struggling to access loans to fund their operations.

“Before the increase in interest rate to 12 percent, banks were not lending to MSMEs. The recent increase of interest rate will now increase the unwillingness of banks to lend to small businesses,”Friday Opara, director, strategic partnership, Small and Medium Enterprises Development of Nigeria (SMEDAN) told Start-Up Digest.

“SMEs will be crowded out from getting loans with the increase,” he said.

Opara called on the CBN to urge banks to create a specific interest rate for small businesses so that they would be able to access funds to grow for the overall productivity of the economy.

According to Frank Udemba Jacobs, president, Manufacturers Association of Nigeria (MAN), the MPR should come down as low as two or three percent, to enable deposit money banks lend to MSMEs at single-digit rates.

“I think we should ensure MPR gets so low to enable banks lend at around five percent,” Jacobs said at a panel session at MAN Expo held in Lagos.

Jon Tudy Kachikwu, chairman of the Small and Medium Enterprises Group (SMEG) of the Lagos Chamber of Commerce and Industry (LCCI), said while loans in countries like China were being accessed at between two and six percent, Nigeria’s often went as high as 35 percent at banks.

“Even the intervention funds of the CBN cannot be accessed at nine percent,” Kachikwu told Start-Up Digest.

“They tell you it is nine percent, but by the time they put one or two things together, it will be between 22 and 25 percent,” he added.

In a telephone interview, David Omololu Aiyeola, executive secretary, Nigerian Association of Small &Medium Enterprises (NASME), Lagos Chapter, told Start-Up Digest that, “there was no significant change in banks lending to small businesses. With the increase, small businesses will experience more hardship.”

Aiyeola further said that, “the CBN has special funds for SMEs, but most businesses can’t access them because of the weak transmission mechanism and most SMEs cannot meet banks’ requirements. The CBN has to urge banks to relax some requirements so that businesses can get loans from banks.”

Nigeria has 37 million MSMEs, contributing 47 percent to the GDP. Only 3.5 percent of bank finance flows to agriculture and 0.2 percent to SMEs, and virtually nothing to exports, according to the CBN. While some operators lament the hike in MPR, others feel it does not really make any difference.

Madu Chikwendu, chief executive officer, MCM Group said, “I don’t think there would be a difference because banks have never lent money to small businesses even when the rates were lower.”

ODINAKA ANUDU & JOSEPHINE OKOJIE