THE IMPACT OF INTEREST RATE HIKES ON SMALL AND MEDIUM ENTERPRISES (SMES) IN DEVELOPING ECONOMIES

Small and Medium Enterprises (SMEs) form the bedrock of many developing economies, acting as vital engines for employment generation, innovation, and overall economic growth. However, this crucial sector faces significant threats from macroeconomic policy shifts, particularly increases in interest rates. This article examines the multifaceted impacts of interest rate hikes on SMEs within developing economies through a comprehensive review and synthesis of existing literature. The analysis reveals that rising interest rates negatively affect SMEs by increasing their borrowing costs, reducing access to credit, dampening investment, escalating operational expenses, diminishing consumer demand, and ultimately elevating the risk of loan defaults and business closures.