13% MPR puts manufacturers’ credit access in jeopardy

The Central Bank of Nigeria’s decision to raise the Monetary Policy Rate (MPR) from 12 percent to 13 percent will likely make it more difficult for manufacturers, micro, small and medium scale enterprises (SMEs) to have access to credit facilities from banks and other financial institutions.

In order to save the naira and the economy from the negative impact of declining oil prices and mop up liquidity from the banks, the CBN recently raised the MPR, which is the benchmark interest rate in the country, to 13 percent.

The decision may however make

funds costlier for manufacturers and SMEs that deal directly with banks whose lending rates already hover between 17 and 30 percent.

This leaves real sector players who need access to finance  to propel their businesses with little options and could increase their production costs and reduce their competitiveness both in the local and international markets.

“With the current interest rates hovering between 17 percent and 28 percent, and for a growing economy like ours, it will be difficult to achieve the desired economic growth and motivate indigenous entrepreneurs to create businesses, since they will not be competitive with their foreign counterparts who obtain fund from their countries at single digit and invest in the Nigerian economy,” said Mohammed Badaru Abubakar, national president, Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), during an economic review in Lagos.

The Manufacturers Association of Nigeria (MAN), in its recent economic review, put the average interest rate charged by banks to its members in 2013 at 20.4 percent. MAN revealed that players in the food, beverage and Tobacco sector, borrowed at an average rate of 20.7 percent in 2013, while those of tottering textile, apparel and footwear players, got loans  at an average rate of 20.3 percent.

Similarly, wood and wood products makers’ average rate peaked at 21 percent, while rates for the pulp, paper, printing and publishing sector averaged 20.8 percent.  The chemical and pharmaceutical sector was not spared, as average borrowing rate was 21 percent.   The non-metallic products sector, including cement and ceramics manufacturers, borrowed at an average rate of 21.2 percent, whereas domestic/industrial plastic and rubber producers did so at the rate of 22.4 percent.

‘’Except for a few multinationals, majority of members are priced at the high premium of 21 percent, which has to a great extent limited the potential in the manufacturing sector,’’ says MAN, in its 2013 Economic

Review released recently.

The lending rate for South Africa as at March 2014 was nine percent. Government also provides grants for key manufacturers, while the department of trade and investment, Khula Enterprise Finance, South African Micro Finance Apex Fund provide financing for manufacturing.

World Bank data also shows that the lending rate in Iran, another GDP laggard to Nigeria, was 12 percent as at 2012.

The Bank of Industry (BoI) is reputed to be dishing out loans to manufacturers and SMEs at single digit interest rates. Currently the bank has credit facilities for automotive industry players and agro processors, among others. The bank recently launched the Cottage Agro-Processing (CAP)Fund to provide loans to beneficiaries to small scale plants or mini mills to process agricultural products.

The CBN has also established the N220 billion MSME Fund, with a promise to lend at single digit. However, stakeholders say what matters more to make access to such funds simple for real sector players.

“In many cases, SMEs complain about collateral and other conditions given to them by banks. They still complain of cost of credit. This means there should be easy access to credit,” said Muda Yusuf, director-general, Lagos Chamber of Commerce and Industry (LCCI), in an interview.

Businessday