INTEREST RATE AND THE PERFORMANCE OF SMALL AND MEDIUM ENTERPRISES IN NIGERIA. A REVIEW PAPER

Small and Medium enterprises (SMEs) remain central to Nigeria’s economic growth, contributing substantially to employment generation and gross domestic product (GDP). However, their sustainability is increasingly undermined by macroeconomic instability, particularly interest rate. This study explores the impact of interest rate on the performance of SMEs in Nigeria, drawing on loan pricing theory, supply lending theory and credit market theory. Using a qualitative approach, the study reviews empirical studies, Central Bank of Nigeria (CBN) statistical bulletins, and relevant literature to examine how interest rate dynamics influence SMEs output, capital access and competitiveness. The findings reveal that monetary policy rate (MPR) had a significant and positive impact to the total asset and total liabilities for deposit money banks in Nigeria economy but has a negative and insignificant impact to total deposit. It further reveals that interest rate has a negative impact on SME contribution to the Gross Domestic product (GDP). The study recommends that monetary policy rate (MPR) and interest rate be reduced in order to reduce lending rate to SMEs which will improve SMEs’ financial capacity.