NICA calls for regulation of high interest loans to protect SMEs

The National Institute of Credit Administration (NICA) has expressed concerns over the negative impact of high-interest-rate loans on Small and Medium Enterprises (SMEs) nationwide.

In a statement, NICA’s Chief Executive Officer, Prof Chris Onalo, emphasised the urgent need for more accessible loans with lower interest rates and flexible repayment terms to support the profitability and sustainability of SMEs.

The institute points to the comparative advantage businesses enjoy in advanced economies, attributing their competitive edge to the availability of low-interest rate loans, often in the single digits.

Onalo advocates for access to single-digit interest rate loans with flexible repayment options as the ideal solution to bolster a business-friendly climate and empower businesses to thrive and expand.

The statement said, “It is difficult for businesses to break even with high-interest rate loans because the SMEs have other high operating costs which will make repayment a challenge to them.

“To be better competitors and be empowered to expand their trades, businesses should have access to single-digit interest rate loans with flexible repayment options. This is the ideal situation that will boost a business-friendly environment.”

Highlighting the broader socio-economic implications, NICA emphasised that SMEs are a vital source of livelihood for a significant portion of the Nigerian population.

As such, improving access to affordable financing is not just a matter of business support but also a critical factor in enhancing the quality of life for many Nigerians.

Access to cheaper loans would allow SMEs to save more, alleviate the burden of debt repayment, and secure more capital for expansion, ultimately contributing to the country’s Gross Domestic Product (GDP).

On lending institutions’ reluctance

The institute also addressed lending institutions’ hesitance to offer long-term loans under current conditions, advocating for more flexible loan solutions to alleviate financial strain on business owners.

The statement noted, “While observing that lending institutions may not want to offer long-term loans in some cases, NICA advocates flexible loan solutions will help to reduce repayment strain on the business owner’s finances.”

It also noted that by improving access to loans with favourable terms, entrepreneurs would be less likely to turn to predatory lending practices and more likely to find repayment plans that align with their financial capabilities and goals.

Recall that NECA said that restricted access to credit hurts the expansion of businesses and production capabilities, as well as worsens poverty levels across Nigeria.

The Central Bank of Nigeria (CBN) recently increased its monetary policy rate (MPR) by 400 basis points, setting it at an unprecedented 22.75 percent.

This adjustment marks a significant departure from the previous rate of 18.75 percent, maintained since the Monetary Policy Committee’s (MPC) last convening on July 24th and 25th, 2023.

The recent decision made by CBN Governor Yemi Cardoso has pushed the MPR to its highest level yet, highlighting the CBN’s strong approach to monetary tightening in light of economic challenges.

However, the Centre for the Promotion of Private Enterprise (CPPE) has expressed concerns that the outcome of the MPC meeting in February 2024 could negatively impact the real sector of the economy, which is already facing various macroeconomic difficulties.