‘Tight monetary policy stifling credit access of MSMEs’

The Central Bank of Nigeria (CBN)’s tight monetary policy has continued to stifle the credit access of micro, small and medium enterprises (MSMEs) while also crowding out private sector investment in the country, experts said at this year’s BusinessDay SME Forum held in Lagos.

In a bid to salvage the economy from global financial volatility as a  result of plunge in the price of global crude oil, the CBN devalued the currency and allowed it to float around a  midpoint of N168/US$ within a band of +/- 5 percent and tightened the monetary system.

This was followed by the closure of the Retail and Wholesale Dutch Auction System windows of the foreign exchange market, which signalled a further devaluation of the exchange rate from N168/$ to N198/$. These have worsened the chances of MSMEs getting credit access from banks and other financial institutions at cheaper rates.

Bayo Ogunnusi, a panellist at BusinessDay’s SME Forum and group head of SMEs at Heritage Bank, said the negative impact of the naira devaluation reflected on a number of SMEs defaulting this year and banks having to extend loan tenors and restructure terms of payment to support the defaulters.

Ogunnusi, while speaking on the high cost of borrowing for SMEs, explained that cost of deposited funds added on the Monetary Policy Rate (MPR), among other ‘menu costs’, would keep lending rates high.

SMEs are faced with diverse challenges ranging from multiple tax system, weak institutions, lack of adequate supply of power, inadequate finance and lack of incentives from the government. Amid devaluation, the MPR, which determines banks’ interest rate, was also raised by the apex bank from 12 percent to 13 percent. This has equally made funds costlier for MSMEs as they now borrow between 20 and 35 percent, according to experts.

Ikechukwu Kelikume, faculty member at the Lagos Business School (LBS), who delivered the keynote presentation at the event, explained that the “cost of doing business is now very high for SMEs, especially companies that are heavily exposed to dollar denominated debt.”

“Since the SMEs are found majorly in the service sector where the bulk of the raw materials are imported, continuous devaluation of the naira against the US dollar implies rising cost of imports at the expense of export,” Kelikume said.

“The current tight monetary policy stance of the CBN also implies rising cost of borrowing,” he added.

Josephine Okojie