High Interest Rates on Small and Medium Enterprises in Nigeria: Challenges and Legislative Pathways

Abstract

Small and Medium Enterprises (SMEs) is a phenomenon that can never be over emphasized from the perspective of growth, empowerment sustainability as the case maybe. This scheme has played a critical role in Nigeria's economic growth, accounting for around 48% of the country's Gross Domestic Product (GDP) and employing more than 84% of the workforce (NBS, 2024). However, the Central Bank of Nigeria's (CBN) decision to keep the Monetary Policy Rate (MPR) at 27.5% has increased financial pressure on these businesses. Rising interest rates have increased borrowing costs, reduced credit availability, and hampered corporate expansion, with an attendant consequence on increased unemployment rate in the country. SMEs are widely acknowledged as the backbone of the Nigerian economy, contributing significantly to employment generation, poverty reduction, and GDP growth. To ensure the effective operation of SMEs and to promote a conducive business environment in Nigeria, this brief recommends the following:

i. The National Assembly may wish to advise the Governor of the Central Bank of Nigeria on the need to cap interest rates on loans extended to SMEs, ensuring they remain within affordable thresholds;

ii. The National Assembly may wish to advise the federal government through the Ministry of finance and Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) on the need to develop alternative financing avenues such as a government backed credit guarantee programme and or microfinance institutions and cooperative societies, which would offer more favourable terms to reduce the risk for lenders and encourage the extension of credit to SMEs; and

iii. The Nigerian banks and other financial institutions may wish to organise a nationwide public lectures and sensitization programmes on financial literacy aimed at educating SME owners on effective financial management and loan utilization