Small and Medium Enterprises (SMEs) in Nigeria are facing increased financial strain following the Central Bank of Nigeria’s (CBN) decision to maintain the Monetary Policy Rate (MPR) at 27.5%. The decision, announced after the latest Monetary Policy Committee (MPC) meeting, has sparked concerns among business owners who depend on loans to sustain operations.
According to the MPC communique, the move was driven by recent macroeconomic indicators suggesting improved market stability, particularly in foreign exchange and inflation trends. However, the committee noted that core inflation remains a challenge, with food prices exerting upward pressure. CBN Governor Olayemi Cardoso stated that while inflation is showing early signs of easing, cutting rates too soon could reverse recent gains.
Economic analysts argue that while keeping the rate steady provides temporary relief, it does little to solve the long-term issue of expensive credit for businesses. Dr. Muda Yusuf, CEO of the Centre for Promotion of Private Enterprises (CPPE), pointed out that many SMEs are struggling to service loans that were taken at much lower interest rates just a few years ago.
“The impact is that it will bring some relief to businesses, especially those already indebted to banks. However, maintaining the rate is not enough—what businesses truly need is a reduction. Servicing loans at nearly 30% interest is excruciating, burdensome, and outrageous,” Yusuf stated.
He noted that businesses that secured loans at around 20% interest rates two to three years ago are now struggling under the weight of increased borrowing costs. “Existing debtors are the worst hit because they cannot walk away from their loans. Fresh borrowers can choose whether or not to take a loan, but those already indebted are stuck,” he added, urging the CBN to consider lowering both the MPR and the Cash Reserve Ratio (CRR) in its next review.
Dr. Adam Abudu of the Society for Peacebuilding and Economic Advancement echoed similar concerns, arguing that the current policy stifles business growth rather than controlling inflation. “MPR at 27.5% has no real impact on inflation control. Instead, it is making life difficult for entrepreneurs. Businesses need access to affordable credit to create jobs and expand investments. The current policy discourages borrowing and, by extension, hinders economic growth,” he said.
As businesses struggle with high borrowing costs, industry stakeholders are calling on the CBN to reconsider its monetary policy stance at the next MPC meeting. Many believe that a lower interest rate would stimulate economic activity, encourage investment, and create jobs.
For now, Nigerian SMEs must find alternative means of financing their operations, as traditional bank loans remain unaffordable for many. Without a reduction in interest rates, the cost of credit will continue to weigh heavily on small businesses, slowing expansion and limiting their contribution to economic growth.
