[size=20pt]Nigeria’s Commercial Banks To Slash Lending Rates For SMEs[/size]

Posted on April 10, 2013 10:45 am under Business, Finance/Money, Strategies & Solutions

VENTURES AFRICA – Nigeria’s Bankers Committee at a meeting in the Central Bank of Nigeria (CBN) headquarters, Abuja, on Tuesday, has agreed to come up with a strategy that will make the Micro, Small and Medium Enterprises (MSMEs) more virile and thriving through the reduction of lending rates.

The Bankers’ committee posits that a reduction in bank lending rates will make way for a virile and thriving informal sector which is a potent tool to reduce Nigeria’s current social tension.

Addressing journalists on the resolutions made after the regular meeting of the committee, Group Managing Director, Diamond Bank plc, Alex Oti, said the committee deliberated extensively on how to reduce interest rates on loans for small scale and micro businesses as the sector have the capability to stimulate economic growth.

“We discussed how to reduce interest rate to this sector to make lending cheaper for the industry and enable it generate employment and improve productivity,” Oti said.

“We have decided that banks will need to now begin to give about 10 per cent to small and medium scale enterprises.”

He added that the modalities on how to achieve lower rate for the sector would be made public within the next few weeks, adding that the issue would be adequately ironed out at its ongoing bankers’ committee retreat.

http://www.ventures-africa.com/2013/04/nigerias-commercial-banks-to-slash-lending-rates-for-msmes/

This is probably the best single piece of news to come out of Nigeria in the last twenty years.

The key to unlocking this economy is favourable, affordable lending rates for small-scale businesses.

they should try and do something about it oh.

I hope they were not just playing to the gallery. Generally speaking, the credit risk of small businesses is higher than that of multinationals and one of the reasons for interest is to compensate for the risk factor.

Lending to small businesses also requires more management and closer monitoring. This again adds to the cost of admin.

Well, I believe the banks expressed a good intention and have the wherewithal to reduce the interest rate by a few basis points if greed (the spread they get is wide enough) will allow them. They may also match/dedicate some cheap funds to the small businesses and/or come up with other conditions.

But honestly, I doubt the 10% promise (or story). What's the average cost of funds of many of these banks before even adding the operating expenses? What's the current inflation rate?

Well, we'll see. It's a good thing to hear anyway. The unlocking of the SMEs will be very good for the economy.

However, there are other factors militating against the SMEs other than interest rate.