EFFECT OF HIGH INTEREST RATE ON SME BUSINESS PERFORMANCE IN NIGERIA

This study sought to evaluate the effect of interest rate on the growth of SMEs in Nigeria, using annual time series data from 1990-2022. The data for the study was sourced from the World Development Indicator (WDI) and the Central Bank of Nigeria (CBN) statistical bulletin. The data collected were Small and medium scale enterprises GDP (SMEG) which is the dependent variable while commercial bank total credit to private sector, commercial bank loans to SMEs, percentage of commercial bank loans to SMEs, Monetary Policy Rate (MPR), inflation, exchange rate, reserve requirement and lending rates of commercial banks to SMEs are the independent variables. Descriptive and inferential statistics were employed, the Autoregressive Distribution Lag (ARDL) were used to test the long run relationship of the variables. The results show that LRCM have a negative effect on SMEGDP such that if the LRCM is increased by 1%, SMEGDP declines by 1.6%. On the other hand, an increase in RR by 1% leads to an increase in SMEGDP by 0.005%. The study recommends that MPR and INFR should be reduced to bring about a reduction in LRCM that will improve financial capacity of SMEs, thus lead to an increase in the contribution of SMEs to nation’s GDP.