The Lagos Chamber of Commerce and Industry (LCCI) has called for stronger transmission of monetary policy easing to businesses following the Central Bank of Nigeria’s (CBN) decision to cut the Monetary Policy Rate (MPR) by 350 basis points from 26.5 per cent to 23 per cent.
The Chamber said the rate cut, announced at the conclusion of the CBN Monetary Policy Committee’s 307th meeting, was a positive development that could ease financing pressures, stimulate private-sector investment and support economic activity, particularly for micro, small and medium-sized enterprises (MSMEs).
However, the LCCI cautioned that a lower MPR would not automatically translate into cheaper or more accessible credit for businesses, stressing that the effectiveness of the decision would depend largely on how quickly monetary easing was transmitted through the financial system to actual lending rates and credit allocation.
Its Director General, Dr. Chinyere Almona, said the immediate priority should be to ensure that the reduction in the benchmark interest rate results in improved financing conditions for productive businesses.
According to the LCCI, lower policy rates can reduce the cost of funds within the financial system and improve credit conditions, thereby supporting businesses seeking financing for working capital, investment and expansion.
It, however, noted that Nigerian businesses continue to face several risks beyond the cost of borrowing, including high energy costs, elevated logistics and transportation expenses, exchange-rate risks, rising input costs and infrastructure deficiencies.
The Chamber said these challenges could limit the ability of businesses, particularly SMEs, to generate the cash flows required to obtain and service bank loans, even as the CBN eases its monetary stance.
It added that insecurity in some parts of the country, alongside uncertainties surrounding the evolving policy and business environment, could further influence business confidence and lenders’ assessment of credit risks.
The LCCI explained that commercial banks do not determine lending decisions solely on the basis of the CBN’s policy rate, but also consider borrowers’ cash-flow capacity, collateral, credit history, sectoral risks, business prospects and repayment capacity.
“Consequently, unless the underlying business risks confronting enterprises are simultaneously addressed, the reduction in the MPR may have a limited impact on actual credit access for many SMEs,” the Chamber said.
The LCCI therefore urged the CBN and financial institutions to closely monitor the response of banks and other lenders to the easing of monetary conditions, particularly the movement of lending rates and the volume of credit flowing to productive sectors.
It also called for stronger credit guarantees, partial-risk guarantees and other de-risking instruments that could encourage financial institutions to lend to viable SMEs while maintaining prudent banking standards.
The Chamber further advocated greater use of cash-flow-based lending, credit scoring, movable assets and other alternative forms of security to expand access to formal credit for businesses that have viable models but lack conventional collateral.
According to the LCCI, many SMEs remain excluded from formal financing because they cannot meet traditional collateral requirements, making alternative credit assessment and security mechanisms critical to expanding access to finance.
The business group also said monetary easing should be complemented by measures aimed at reducing the structural risks confronting enterprises.
It identified high and unreliable energy costs, expensive logistics, infrastructure deficiencies, multiple regulatory charges and other barriers to competitiveness as factors that continue to weaken the operating capacity of Nigerian businesses.
The Chamber said addressing these constraints would strengthen businesses’ ability to generate revenue and cash flows, thereby improving their capacity to borrow and repay loans.
It further urged policymakers and financial institutions to ensure that increased liquidity resulting from monetary easing is channelled towards productive sectors capable of expanding output and employment.
The sectors identified by the LCCI include manufacturing, agriculture, agro-processing, trade, logistics, technology, healthcare and construction.
The Chamber said directing more credit to these sectors would help maximise the potential economic impact of the CBN’s decision by supporting productive capacity, investment and job creation.
The LCCI acknowledged that the CBN was operating within a delicate balance between supporting economic growth and maintaining price and financial stability.
It noted that the rate reduction came amid improving inflation dynamics and other macroeconomic developments that have created greater room for monetary easing.
The Chamber said the development presented an opportunity to strengthen the transmission of monetary policy to the productive economy after businesses had faced prolonged financing constraints.
The LCCI commended the CBN for taking steps towards easing financial conditions but stressed that the reduction in the MPR should not be viewed as sufficient to resolve the financing challenges confronting Nigerian businesses.
It said monetary easing would have a more meaningful impact if accompanied by measures that reduce lending risks, improve the operating environment and strengthen the capacity of businesses to access and repay credit.
For the SME sector, the Chamber said the broader objective should be to create an environment in which lower policy rates translate into lower lending rates, increased credit supply and appropriately structured financing.
“The current rate reduction provides an important window of opportunity. The priority now should be to ensure that this window translates into credit for businesses, investment in productive capacity, jobs, and sustainable economic growth,” the LCCI said.
