Affordable loans are being required by LCCI after the CBN cut. The Lagos Chamber of Commerce and Industry (LCCI) has called on banks to reduce the cost of loans following the Central Bank of Nigeria’s decision to cut the Monetary Policy Rate (MPR) by 350 basis points to 23 per cent. The chamber has said that the move should make financial loans less stressful for businesses, especially micro, small and medium enterprises (MSMEs), which have been dealing with increasing interest rates and rising operating costs. LCCI Director-General, Dr Chinyere Almona, welcomed the decision, saying it could provide some relief for businesses that have been dealing with high borrowing costs. She said the reduction in the policy rate could help bring down funding costs for banks. She said the move could make borrowing less expensive for businesses and give more companies a better chance of getting the loans they need to run and expand their operations. Almona said businesses could use cheaper credit to put more money into their operations, expand existing businesses, and invest in new projects. In addition, she stated that this might also help grow business activity in different sectors of the economy.
Almona, however, said businesses should not assume that the reduction in the MPR would immediately result in lower lending rates from commercial banks. “Credit transmission must be the next priority.” She emphasised that the cost of borrowing was one of the difficulties that businesses face; there are also other strains on their operations. High power consumption, transportation price changes, exchange rate fluctuations, and the price of raw materials increase costs, and poor infrastructure, insecurity, and regulatory charges are some of the challenges that affect business operations. Almona also explained that the MPR was only one of the factors banks consider when deciding whether to lend to a business. She also said that bankers consider the amount of cash that comes in and goes out of one’s account, credit history, available collateral, and ability to pay back before making the decision to approve any loan and the conditions that will come with it. The risks involved in the particular sector where the business operates can also affect the decision.
She therefore urged the CBN and financial institutions to ensure that the latest reduction in the policy rate eventually leads to more affordable credit for businesses, especially SMEs. Almona further called for stronger credit guarantee and partial-risk programmes to help businesses get loans. She also said that many businesses are able to repay loans, but the conditions set to get the loans are a big hindrance to why some people don’t get loans. More support in this area, she added, would make it easier for such businesses to secure the funds they need. She further encouraged banks to make greater use of cash-flow-based lending and credit scoring when assessing businesses. Movable assets, she said, could also be considered as an alternative to the traditional requirement for fixed collateral.
Beyond access to loans, Almona said there was a need to address some of the wider problems making it difficult for businesses to operate and grow. She pointed to high electricity and transportation costs, infrastructure gaps, and multiple regulatory charges as some of the issues that continue to place additional pressure on companies. She said more of the funds available in the financial system should reach businesses in important areas of the economy, including manufacturing, agriculture, agro-processing, trade, logistics, technology, healthcare, and construction. According to her, better access to finance in these sectors would give businesses more room to maintain their operations, invest in expansion, and take on more workers.
She listed manufacturing, agriculture, agro-processing, trade, logistics, technology, healthcare and construction among the areas that could benefit from improved access to finance. Almond embraces CBN’s choice to cut down loan costs, but according to him, the attention should be on how it affects business in the long term. For the LCCI, she said, the expected benefit should go beyond a change in the policy rate and reach businesses looking for funds to maintain or expand their operations. “The priority now should be to ensure that this window translates into credit for businesses, investment in productive capacity, jobs and sustainable economic growth,” she said.
