The Lagos Chamber of Commerce and Industry (LCCI) has called on the Central Bank of Nigeria (CBN) and financial institutions to ensure that the recent monetary policy easing translates into lower borrowing costs and improved access to credit for businesses. This call follows the CBN Monetary Policy Committee's decision to reduce the Monetary Policy Rate by 350 basis points from 26.5 per cent to 23 per cent. The LCCI described the reduction as a positive development that could ease financing constraints and support economic activity.
The LCCI noted that the success of the policy would depend largely on the extent and speed at which the easing of monetary conditions is transmitted through the financial system to bank lending rates and the allocation of credit to productive enterprises. According to the Director General of the LCCI, Chinyere Almona, the immediate focus should be on ensuring that the reduction in the benchmark rate produces tangible improvements in financing conditions for productive businesses. A lower policy rate has the potential to reduce the cost of funds across the financial system and create more favourable credit conditions for businesses.
However, the LCCI cautioned that a reduction in the benchmark rate would not, on its own, guarantee cheaper or more readily available credit for businesses. The business group identified high energy costs, rising logistics and transportation expenses, exchange-rate volatility, increasing input costs and inadequate infrastructure among the factors placing additional pressure on businesses. These structural constraints could undermine the ability of enterprises, particularly SMEs, to generate sufficient revenue and cash flow to secure and repay bank loans.
The LCCI also cited insecurity in parts of the country and uncertainties surrounding changes in the policy and business environment as factors that could affect business confidence and influence the way lenders assess credit risks. Commercial banks consider several factors beyond the CBN’s policy rate when determining whether to grant loans and the terms attached to such facilities. These factors include a borrower’s cash-flow position, available collateral, credit history, sector-specific risks, business prospects and capacity to repay.
The Chamber called on the CBN and financial institutions to closely track how banks and other lenders respond to the easing of monetary conditions. It specifically urged stakeholders to monitor movements in lending rates as well as the volume and direction of credit being extended to productive sectors of the economy. The LCCI also advocated the expansion of credit guarantees, partial-risk guarantees and other de-risking mechanisms that could encourage banks to extend financing to viable small and medium-sized businesses.
The LCCI recommended greater adoption of cash-flow-based lending and credit-scoring systems, alongside the use of movable assets and other alternative forms of security, to broaden access to formal financing. A significant number of SMEs remain outside the formal credit market because they are unable to meet conventional collateral requirements. Alternative methods of assessing creditworthiness and securing loans would be important in enabling businesses with viable operations and business models to access finance.
The LCCI stressed that monetary policy easing needed to be supported by complementary measures aimed at tackling the structural problems that increase operating risks for Nigerian businesses. Resolving these issues would improve the capacity of businesses to generate revenue and maintain healthy cash flows, thereby strengthening their ability to obtain and service credit. The Chamber listed manufacturing, agriculture, agro-processing, trade, logistics, technology, healthcare and construction among the sectors that should benefit from increased access to credit.
Key points
- The LCCI urges the CBN and financial institutions to ensure that the recent monetary policy easing translates into lower borrowing costs and improved access to credit for businesses.
- The success of the policy depends on the extent and speed at which the easing of monetary conditions is transmitted through the financial system.
- The LCCI recommends the expansion of credit guarantees and alternative methods of assessing creditworthiness to broaden access to formal financing.
