CBN interest rate hike choking MSMEs, say operators

CBN interest rate hike choking MSMEs, say operators
Godwin Emefiele, CBN Governor


The new 16.5 per cent interest rate is stifling the growth of micro-, small- and medium-sized enterprises in Nigeria.

The MSMEs owners said the sector was hard hit by the recent increase in interest rate by the Central Bank of Nigeria’s Monetary Policy Committee.

The MPC had increased the benchmark interest rate by 100 basis points to 16.5 per cent from 15.5 per cent, the highest since 2001.

The decision, the committee said, was meant to rein in inflation and restore investors’ confidence.

SMEs had been battling with several challenges such as high energy cost, foreign exchange scarcity, among others. Small business owners told The PUNCH on Monday that the current situation was deepening the challenges of MSMEs.

Operators told The PUNCH that if urgent palliatives and interventions such as those witnessed during the COVID-19 pandemic were not revisited, many MSMEs may wind up.

An operator of a peanut business in Lagos, Yinka Afinni, told our correspondent that the spike in interest had raised the cost of production in his business, noting that production capacity had also declined from what it was in the past.

According to him, the plan of his peanut firm to hire more hands had been put on hold indefinitely because of the shrink in the company’s revenue.

He, however, called on the government to provide urgent financial intervention to stem the effects of the interest rate.

According to him, a single-digit interest rate would prevent the SMEs from total collapse.

Also speaking with The PUNCH, the Chief Executive Officer, Eko Coop Rice Processing Milling Company, Adebayo Adams, said the spike in interest rate had led many SMEs to only thrive on survival.

He said that even though his firm’s materials were sourced locally, it would need money to purchase some of them. He lamented the price of diesel and incessant power outages needed for production.

He said, “The interest rate is going to compound the problems of small businesses in the country by preventing them from competing adequately.

“If there is no electricity, you will be forced to buy diesel N820 per litre. If you are buying it at this rate, what do you want to produce?” Adams asked rhetorically.

Speaking further, he said the SMEs were not getting their funds from regular commercial banks but from microfinance banks whose charges had become extremely exorbitant.

According to him, “An average microfinance bank would charge between 5 to 7.5 per cent per month. Now, they have increased it to 10 per cent every month.

“This is the only place you can easily get money to fund your business, but how much are you going to sell that is going to make you competitive?”

“A high interest rate is no longer attractive to small businesses in Nigeria. This is going to make a lot of people close shop. And a lot of people will lose their jobs.

“There is no way you can have this high interest rate and expect business to grow.”

The Chief Executive of Sosi Food, Chief Mrs. Oduntan Seyi, said the current situation was hurting everybody. She noted that the hike had compounded the problem of access to the loans which had remained a lingering issue for the SMEs.

“Margins are very small because if you have a double-digit interest rate, you can’t make any margin because of infrastructural problems such as transportation, diesel cost, among others.

“So, margins have reduced drastically. With the new interest rate, we are just trying to survive because the bottom-line has been erased.

“And if you are now getting money from the bank with high interest, how do you get back the money?”

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