Source: Vanguard
MANUFACTURERS Association of Nigeria, MAN, has said that right regulatory policies by the Central Bank of Nigeria can bring down high interest rate in the country to five per cent from the current charges of 25- 30 perccent by Deposit Money Banks, DMBs.
Addressing the Senate Committee on Banking, Insurance and Other Financial Institutions headed by Senator Rafiu Ibrahim, MAN noted that the current high lending and interest rate in the country were not business friendly to stakeholders in the manufacturing sector of the economy.
In his presentation entitled ‘Addressing the high interest rate in Nigeria’to the Senate Panel in Abuja, Dr. Frank Udemba Jacobs, President of MAN, said,“The way forward for a single digit lending rate in Nigeria as obtained in countries like Japan, Malaysia, Botswana, Ethiopia, etc, is right regulatory policies from the monetary authority, CBN.
“Experience has shown that since the post structural adjustment programme market reforms in the 80s, lending rate has been on the upward trend. Manufacturers and other real sector operators are of the view that the high lending rates in the country are not business friendly.
High rate of default
“Lending rates at present vary between 15 and 30 per cent (excluding other ancillary charges), which is considered as excessive for a developing economy like ours that is in dire need for development. Such excessive high interest rate regime is a great albatross on businesses particularly those in the small and medium categories, which in the medium to the long run encourages high rate of default in loan repayments. This is contrary to what is obtainable in developed economies of the world where lending rates are in single digit range.”
According to him, in view of the expeditious need to move the economy of Nigeria forward and create opportunities for inclusive growth, MAN believes that a lending rate of five per cent per annum is quite apt. He maintained that towards achieving this goal, there is need to critically examine the following with a view to putting them in the right perspective:
Jacobs said,“CBN should come out with clearly defined and compelling policy on interest rate and other charges. Banks should not be allowed to hide under market liberalization in piling up plethora of charges on borrowers which may back-fire in terms of delinquent loans.
“Exploring the bond market for long term fund for on-lending to the real sector operators who need such kind of fund to nurture businesses with long gestation period will be a welcome development. The activity of the Debt Management Office in deepening the bond market in the country is commendable. A recent survey by IMF showed that Nigeria’s sub-national bond market yield performance has outclassed South Africa’s and the rest of the continent in terms of yield.
“Governments at all levels should continue to improve the enabling environment for competitive industrialization, rapid infrastructural development, good regulatory regimes, and other development indicators. Putting an end to the epileptic public power supply, for instance, will go a long way in drastically reducing the operating cost of businesses including banks.”
“This will need governmental intervention as a form of subsidizing production and not consumption for the obvious reason of increasing agricultural and industrial capacities and the consequential effect of massive employment creation, poverty reduction, export expansion, social stability and even increased government tax revenue,” he added.