IMPACT OF MONETARY POLICY ON SMALL BUSINESS LENDING, INTEREST RATES, AND EMPLOYMENT GROWTH IN DEVELOPING ECONOMIES

Monetary policy plays a critical role in shaping macroeconomic conditions by influencing interest rates, liquidity,and credit availability. In developing economies, where financial markets are often less mature and more volatile,the effectiveness of monetary policy is particularly consequential for small businesses, which form the backboneof employment and economic growth. This study examines the multifaceted impact of monetary policy on smallbusiness lending, prevailing interest rates, and employment trends within the context of developing countries. Theanalysis begins by evaluating the transmission mechanisms through which central bank policies—such as changesin benchmark interest rates or reserve requirements—affect commercial bank lending behavior. Given theconstrained access to capital and higher risk perception associated with small enterprises, contractionary monetarypolicy often disproportionately restricts their credit supply. This credit rationing effect, in turn, influences businessinvestment decisions, working capital cycles, and hiring capacity. Furthermore, the paper explores how interestrate fluctuations shape the cost of borrowing for small enterprises and the broader implications for employmentgeneration. Empirical data from selected developing economies indicate that accommodative monetary policyenhances small business lending and promotes job creation, while tightening measures tend to stifleentrepreneurial activity and slow employment growth. The study concludes by emphasizing the need for contextsensitive monetary policy that accounts for structural weaknesses in credit markets. It recommends targetedrefinancing schemes, credit guarantee mechanisms, and coordinated fiscal-monetary actions to cushion smallbusinesses from adverse policy shocks and promote inclusive economic growth