The Lagos Chamber of Commerce and Industry (LCCI) has welcomed the Central Bank of Nigeria's (CBN) decision to reduce the Monetary Policy Rate (MPR) from 26.5 per cent to 23 per cent. The LCCI described the move as a positive signal for businesses constrained by the high cost of credit. However, the Chamber cautioned that a lower policy rate does not automatically translate into cheaper or more accessible credit.
The LCCI urged the CBN and financial institutions to ensure that the 350-basis-point reduction in the MPR translates into lower lending rates and increased credit access for businesses, particularly micro, small and medium-sized enterprises (MSMEs). The Chamber noted that the lending environment remained challenging despite the reduction in the benchmark rate, as businesses continue to contend with high energy and logistics costs, exchange-rate risks, and rising input costs.
According to the LCCI, insecurity in some parts of the country and uncertainties surrounding the evolving policy environment could also affect business confidence and lenders' assessment of credit risks. The Chamber explained that commercial banks do not determine the affordability and availability of credit based solely on the CBN's policy rate, but also consider borrowers' cash flows, collateral, credit history, sectoral risks, business prospects, and repayment capacity.
The LCCI called on the CBN to closely monitor the response of commercial banks and other financial institutions to the easing of monetary conditions, particularly changes in lending rates and credit allocation to productive sectors. The Chamber also urged the government and financial-sector institutions to strengthen credit guarantees, partial-risk guarantees, and other de-risking instruments that could encourage lending to viable SMEs without compromising prudent banking standards.
The LCCI advocated for greater use of cash-flow-based lending, credit scoring, movable assets, and other alternative forms of security to enable viable SMEs without conventional collateral to access formal credit. The Chamber further called for measures to address the structural challenges that increase business risks, including unreliable and expensive energy, high logistics costs, infrastructure deficiencies, and multiple regulatory charges.
The LCCI said monetary easing would have a more sustainable impact if increased liquidity was directed towards productive sectors such as manufacturing, agriculture, agro-processing, trade, logistics, technology, healthcare, and construction. The Chamber acknowledged that the CBN was balancing the need to support economic growth with the preservation of price and financial stability, noting that improving inflation dynamics and other macroeconomic developments had created room for monetary easing.
The LCCI said the MPR reduction should not be viewed as sufficient to resolve the financing constraints confronting Nigerian businesses, particularly SMEs. The Chamber stressed that monetary easing must be accompanied by measures that reduce lending risks and improve businesses' capacity to borrow and repay, with the ultimate objective of ensuring that lower policy rates translate into lower lending rates, increased credit supply, investment in productive capacity, job creation, and sustainable economic growth.
Key points
- The LCCI urges the CBN to ensure that the 350-basis-point MPR reduction translates into lower lending rates and increased credit access for businesses.
- The Chamber advocates for greater use of cash-flow-based lending and alternative forms of security to enable viable SMEs to access formal credit.
- The LCCI stresses that monetary easing must be accompanied by measures that reduce lending risks and improve businesses' capacity to borrow and repay.
