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Why SMEs Cannot Get Single Digit Loans From Commercial Banks

Small and Medium Enterprises would continue to find it difficult to get loans at single digit from commercial banks in Nigeria.
For a long time, business owners have complained that the commercial banks are stifling Micro, Small and Medium Enterprises (MESMEs) by lending them funds at double-digit interest rates, but findings have shown that the banks too are operating under challenging environment which has made it difficult for them to give loans at single digit.
A business owner, Ibrahim Hassan revealed that the interest rate of the conventional banks is unbearable because it is over 20 percent.
He said, ‘‘This is stifling business development bearing in mind the fact that one of the major challenges of MSMEs is funding and most of the requirement provided by the commercial and even development banks in Nigeria are very high for the MSME to achieve.”
Despite efforts by financial services regulators to make funds available for small business at single-digit interest rates, banks have said this may not be possible until such facilities are made available to them by the promoters at such low rates.
A banker with a first generation bank told said that single-digit on-lending is not feasible unless banks want to indulge in charity.
Banks are charging high-interest on loans as a result of high operational and regulatory costs. According to development economist, Dr Tayo Bello, factors such as fiscal deficit, government borrowing, money supply and demand are some of the reasons why single-digit loans are very difficult to obtain in Nigeria.
He said that with these, it is nearly impossible to issue an interest rate by fiat. He stated that the interest rate will always be determined by market forces.
Corroborating Dr Bello, the group managing director of Zenith Bank, Mr. Ebenezer Onyeagwu said in an interview that, “Our cost profile depicts the operating environment. When you are looking at cost of doing business, you also need to look in total, how businesses are being conducted. If I set up a branch today, I would need to provide my infrastructure, I need to provide power, water and in some cases, we even construct the road to provide access to the branch location. So, as a result of the poor state of infrastructure, you see that businesses would now have to contend with providing these resources to get their operations running. So, if we have more available and cheaper utility services and infrastructure to support businesses, of course, the cost would go down.’’




culled from National Economy 

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