BORROWING COST FOR BUSINESSESThe interest rate is excessive

These are not the best of times for Nigerian businesses. Both in the formal and informal sectors. From large concerns to Medium, Small and Micro Enterprises (MSMEs), they are buffeted by multifaceted challenges, ranging from high operational costs in terms of energy, multiple taxation and growing insecurity, among others. While these challenges continue to exert their toll, a recent report by the Central Bank of Nigeria (CBN) deserves attention. According to a Business Expectations Survey (BES) published by the apex bank, high interest rates came tops as the most severe constraint affecting business operations in June 2025, overtaking long-standing challenges such as insecurity and poor electricity supply.

Of the over 1,900 firms polled across the agriculture, services, and industrial sectors, high interest rates chalked up 75.6 per cent on the constraint index, followed by insecurity at 75.2 and insufficient power supply at 74.3. Other challenges highlighted by the survey include high bank charges (73.2), multiple taxes (68.9), an unfavourable economic climate (68.7), and unclear economic laws (67.4).

The survey findings underscore the entrenched and seemingly interminable strain Nigerian businesses are subjected to by a hostile operating ecosystem. As of January 2025, Nigeria’s interbank lending rate surged to a five-year high of 28.58 per cent, reflecting the CBN’s aggressive monetary tightening measures. Since the interbank rate is what banks charge one another for short-term loans, typically overnight, it follows that a rising rate signals tighter cash conditions, which in turn raises borrowing costs for businesses and consumers.

Despite the subsisting high borrowing cost, there seems to be no solution in sight. At its last meeting penultimate week, the Monetary Policy Committee (MPC) of the CBN retained the Monetary Policy Rate (MPR), the rate at which the apex bank lends to commercial banks, at 27.5 per cent for the third consecutive time in 2025. It also kept all key policy parameters unchanged. Banks set their lending rates to the final end-users based on the MPR and their assessment of the risk associated with lending to different borrowers. It is a major worry that currently, some Nigerian banks lend at rates as high as 48 per cent. This is not sustainable for businesses, whether in the formal or informal sectors of the economy.

Using the N1,529.53 per dollar exchange rate, figures from the recent rebased Gross Domestic Product (GDP) indicate that the Nigerian economy is worth about $243.53 billion, thus trailing South Africa with an economy worth $410.34 billion, Egypt with $347.34 billion and Algeria with $268. 89 billion. Meanwhile, of the three other leading continental economies, Nigeria’s lending rates are significantly higher. The current prime lending rate in South Africa is 10.75 per cent. In Egypt, the cost of borrowing, reflected by the bank lending rate, recently saw a slight decrease. The Central Bank of Egypt (CBE) cut its benchmark interest rate to 25.50 per cent in April 2025, following a period of record-high borrowing costs. Also, Algeria’s lending interest rate has remained at 8 per cent since 2022. While Kenya is not among the top four economies in Africa, the cost of borrowing in that country was only recently increased to 13 per cent.

The ripple effects of high borrowing cost are enormous. They include, among others, reduced profitability, limited expansion and the consequent employment freeze. High borrowing cost also leads to strained operations, discourage or deter both potential domestic and foreign investor. It is, therefore, imperative that monetary authorities in Nigeria revisit some of their monetary policy tools, particularly the MPR and Cash Reserve Ratio (CRR) to ease the lending costs and strength businesses. This is necessary particularly for a country targeting a $1 trillion economy by 2030.

A thriving business ecosystem is a major incentive for job-led economic growth and national prosperity.

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It is a major worry that currently, some Nigerian banks lend at rates as high as 48 per cent. This is not sustainable for businesses