SMEs say high lending rates are killing their businesses

Operators of micro, small and medium-sized businesses have said that high lending rates by  Deposit Money Banks in the country are denying them access to credit facilities, thereby leading to the collapse of many  small  businesses.

Our correspondent gathered that some DMBs charged as high as 19 per cent to 25 per cent interest rates on loans given to MSMEs, a development, which operators described as “destructive” to indigenous businesses.

Speaking on the negative impact of this development on micro-businesses, the President, Association of Micro-entrepreneurs of Nigeria, Mr. Saviour Iche, noted that the Central Bank of Nigeria’s benchmark lending rate had been “highly unfavourable.”

According to him, DMBs have capitalised on the benchmark rate to lend at very high rates to  small  businesses, adding that the situation does not support small business growth.

He said, “Tough access to credit facilities  does not create room for micro, small and medium enterprises to grow in Nigeria. This is seriously affecting Nigerian industrial development negatively.

“However, I want to encourage all Nigerians who want to go into manufacturing and agriculture not to be discouraged because help is on the way. It is sad to know that industries are closing on a daily basis, and still we are allowing more to close down as a result of government policies  that prevent the growth of new businesses.”

In his reaction, the Managing Director, Nordman Investment Limited, a firm involved in the sales and distribution of telephone accessories in Ojo, Lagos, Mr. Samuel Nnorom, said that the high lending rate regime was a source of discouragement to operators with astute ideas.

He said, “Many of us in this market (Alaba International Market) prefer borrowing from trustworthy colleagues to borrowing  from banks. This is because aside the high rates which they (banks) charge, the conditions attached to the process of borrowing are even frightening.

“If I pay as high as 25 per cent as interest on a loan, how much do you think will be  my gain from the business that I use the loan for? I think it is high time something was done if they (government) want businesses to thrive in this country. They often say small businesses are the major drivers of any economy, but they don’t care how these small businesses are faring. It is sad.”

In July, the Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala, while speaking on the country’s debt profile, described the interest rates charged by DMBs as too high. However, nothing seems to have been done to bring down the rates.

She was quoted to have said, “The interest rates are too high and short-term. We are looking at how the banks can be developmental in approach. I wonder when people tell me that they pay 19 per cent to 21 per cent interest rate; even the real interest rates are too high.”

The CBN had often noted that the high MPR would check inflation. Although this had impacted positively on the country’s external reserves and helped to reduce inflation in the previous months, experts argued that its impact on businesses in the real sector of the economy was more important.

The President, Lagos Chamber of Commerce and Industry, Mr. Goodie Ibru, observed that the high lending rates were stifling the private sector.

He said, “Businesses are facing severe challenges with regard to access and cost of credit. The banking system currently has zero tolerance for risk and this is stifling private sector growth and the capacity of entrepreneurs to create jobs.

“Collateral demands for loans are as high as 200 per cent. This is a negation of the objective of inclusive growth and a real threat to financial intermediation. Additionally, the government is progressively crowding out the private sector in the credit market. These are fundamental issues that need to be addressed to stimulate growth and create jobs.”

Also calling for a reduction in lending rates, the Chief Executive Officer, Economics Associates, Dr. Ayo Teriba, told our correspondent that the CBN’s liquidity tightening measures were at odds with the reality of an uncertain global economic environment and the actions of regulatory banks of most emerging markets.

He argued that central banks of most emerging economies pursued more accommodative policies in order to support domestic growth and rebuff the drag of the global economic landscape.

The Managing Director and Chief Executive Officer, Elephant Group – an agro-business firm based in Lagos, Mr. Tunji Owoeye, in an interview with our correspondent, said that the high benchmark interest rate had not allowed financial institutions to support small businesses as expected.

He said, “Most of our financial institutions are not adequately designed to support small businesses and that is why the sector is finding it tough to thrive.” The Managing Director, Love Bridals, an event management outfit, Mrs. Love Ukemba, said that many small businesses could not afford to pay the rates charged by DMBs.

She said, “I don’t think operators of businesses in this category borrow from banks often. If you like, ask other colleagues of mine around here. This is not because we have enough money to do business, but we all know that the repayment of a loan is not easy as a result of the high interest.

“And nobody will like to lose his or her property because of not being able to repay a loan. If something can be done to bring down the interest on loans to five per cent to 10 per cent, then more   small businesses will patronise the banks.”

Asked if the high rates were affecting businesses negatively, Ukemba said, “Of course it is affecting us. For instance I need to buy a better sewing machine but I don’t have the funds and I cannot approach the bank for loan. So will you say it is not affecting me?”

He said, “The monetary tightening measures obviously show that the CBN is mainly concerned about the excess demand of foreign exchange and not just inflation; for if you hike rate because of excess demand of foreign exchange, what would it do to the growth of the economy?

“The interest rate hike as a matter of fact, will affect the local output growth and local employment growth negatively. So rather than raising MPR, they should ponder on how to use the gains from our oil proceeds to grow or absorb the shock in the foreign exchange.”

Teriba added, “This is way so surprising and we hope they get things right as it is not telling well on local manufacturers and even small businesses that use bank loans to finance some of their projects.”

 

 

 

 

Source: PUNCH