gvA Update

The primary objective of monetary policy and therefore the Central Bank is price stability. As I said last time, in my opinion, fiscal policy by the government is the most responsible for creating jobs. Interest rates as an instrument for job creation can be blunt even in advanced economies. As we know, companies will tend to borrow more for investments when real interest rates are low. However, banks tend not to lend much during low interest rate periods, especially when rates are low because the economy is suffering and even when lending takes place it is often to larger corporations who are more likely to repay the loans. Indeed, recently, small businesses in the United States have been facing an increasingly limited loan market, as a result nonbank lenders are filling that gap, providing options that carry interest rates as much as six times what banks usually charge. This kind of environment could mean that more and more small businesses will be unable to expand their businesses as fast. In 2014, the amount of cash offered by banks in the US to small businesses dropped 38 percent to about $45 billion from a pre-recession peak in 2006 of $72.5 billion. At the same time, high-interest nonbank lenders have increased their market share from 10 percent to 26 percent. In Nigeria, small and medium enterprises account for about 50 percent of GDP and provide about the same share of employment. I believe that in Nigeria, the Central Bank has come up with a good collection of programs to cause commercial banks and micro-finance institutions to be more active in lending to small businesses. Unfortunately, commercial banks as in the United States would rather lend to bigger corporations or the government. If Nigeria and other African countries had large numbers of big corporations to serve as anchors for smaller ones, it would be OK to accept this disproportionate share of lending to larger corporations, but that is not the case. Some Microfinance Banks are charging well over 60 percent per annum on loans to poor people. Why shouldn't they, when they see that there is no where else to turn to for many SMEs. In the end, I think that monetary policy makers in Nigeria are doing a fairly good job considering the harsh global economic environment. However they should turn more attention on the activities of commercial banks. To conclude on our subject matter, since fiscal policy is sharper in developing countries for cutting unemployment, let us use it more so as to allow the monetary authorities to focus on their core mandates. This would be a good thing. I am Magnus Kpakol, and that is my view.


Posted: Aug 31st, 2016 @ 02:59:49 AM