UMORU ABDULKADIR
Ahead of its next meeting of the Monetary Policy Committee (MPC) scheduled for next week, the Central Bank of Nigeria has been urged to review downward, its Monetary Policy Rates (MPR) by putting into consideration the cost of doing business by banks.
The members of the House of Representatives gave this advice during a plenary session.
Monetary policy rate, otherwise known as interest rate controls money supply, credit availability and inflation rate.
With interest rate at 13.5 per cent, Nigeria is the sixth most difficult country for Micro Small and Medium Enterprises (MSMEs) to obtain loans, which is at par with Malawi. It is lower than only Zimbabwe’s rate of 35 per cent, Sierra Leone’s 16.5 per cent, Ghana’s 16 per cent, Angola’s 15.5 per cent and Sudan’s 15.4 per cent.
The House noted that there is a need to control the interest rates of banks’ lending particularly to Small and Medium Enterprises (SMEs), manufacturers and Industrialists.
In his motion titled “Need to Investigate Banks’ Lending Practices, Protect Borrowers from Exploitative Interest Rates and Promote Economic Development,” Fatoba Olusola (APC–Ado Ekiti/Irepodun-Ifelodun Federal Constituency), led the debate.
Olusola said high lending rates impede economic growth as they make access to bank loans difficult, and when it is made to be high by the Central Bank of Nigeria (CBN), commercial banks would make theirs higher.
“When lending is at a high interest rate, profits in the manufacturing process are eroded which makes it difficult or unattractive for manufacturers to continue in business,” he said.
“High interest rates cannot both contain inflation and stimulate economic growth at the same time, while in reality citizens, Small and Medium Enterprises, manufacturers and investors are bearing the brunt of the “cut throat” lending rates where the banks and their directors remain the major beneficiaries of the high lending rates,” he noted.
“When interest rates are high, investors and banks are often willing to invest in government securities which pay high returns, a phenomenon known as crowding out, as high interest rates on government securities draw investments away from other areas of the economy.”
The House, therefore, urged the National Economic Council to consider how to reduce the cost of doing business in Nigeria in a manner that the common man will feel the impact.
It also mandated its Committee on Banking and Currency to interface between commercial banks to ascertain the justification for the big gap between the MPR and the lending rates.
The House Committees on Banking and Currency, Finance, and Industry were also mandated to organise a round-table session with the Central Bank of Nigeria (CBN), Deposit Money Banks (DMBs), the Nigerian Deposit Insurance Corporation (NDIC), Small and Medium Enterprises (SMEs), the Manufacturers Association of Nigeria, Industrialists and industry experts to find solutions.
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