MPR Hike: Interest Rate at 27.25% May Squeeze SMEs, Threaten $1trn Economy Target- Experts

Samuel Mobolaji

Following the Central Bank of Nigeria’s (CBN) decision to raise the Monetary Policy Rate (MPR) from 26.75 per cent to 27.25 per cent, business leaders have warned that the increase could severely tighten lending conditions for Small and Medium Enterprises (SMEs).

Director-General of the Lagos Chamber of Commerce and Industry (LCCI), Dr Chinyere Almona, highlighted that the elevated interest rate would exacerbate an already challenging business environment for manufacturers and SMEs, hindering their access to affordable credit.

“The rise in MPR will complicate operations for businesses already grappling with rising energy and transportation costs,” Dr Almona said, while calling for urgent reforms in Nigeria’s energy sector to stabilize electricity supply, which is critical for SMEs and manufacturers.

The LCCI also emphasized the need for investments in transportation infrastructure, particularly road and rail networks, to mitigate logistics costs and stabilize consumer prices.

Dr Almona stressed that without addressing the underlying drivers of inflation, such as energy and transportation costs, raising the MPR alone will not bring lasting stability. To further curb inflation, the LCCI urged the government to embrace compressed natural gas mobility and to improve foreign exchange management, advocating for a stable naira to reduce imported inflation for critical raw materials.

Meanwhile, Dr. Femi Egbesola, President of the Association of Small Business Owners of Nigeria (ASBON), expressed concern over the potential impact of bank recapitalization on lending conditions. He warned that while the ongoing recapitalization efforts will enhance banks’ capital bases, some institutions might prioritize capital accumulation over lending, which could restrict credit access for SMEs.

Egbesola emphasized the importance of strengthening the capacity of small businesses to drive Nigeria toward its ambitious target of becoming a $1 trillion economy by 2026.

“SMEs are key to achieving this target, but the current high interest rates on loans may limit their growth and production capacity,” he noted, urging increased collaboration between monetary and fiscal policies to create an environment conducive to business expansion.

Professor Olusegun Ajibola, an economist, echoed these concerns, cautioning that smaller banks might struggle to meet stringent capital requirements, which could further tighten credit conditions for SMEs. While the recapitalization process may enhance the overall resilience of the banking sector, the short-term effect on lending to small businesses could be detrimental, Ajibola warned.

Both business leaders and experts agree that while recapitalization is essential for strengthening Nigeria’s banking sector, the high interest rates and tightened lending conditions could hinder SMEs’ contribution to the economy. To achieve the $1 trillion economic target, there must be a focus on boosting production capacity, increasing investments in the informal sector, and fostering partnerships between banks and fintech companies to make financing more accessible and affordable.

Although, the industry experts understand that the CBN’s actions are aimed at controlling inflation and stabilizing the economy, but their potential impact on SMEs—a key driver of growth—must be carefully managed to avoid stifling the very sector that could lead Nigeria to economic transformation.