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DICHOTOMY OF INTEREST RATE DEREGULATION POLICY IMPLICATIONS TO SME PERFORMANCE IN NIGERIA

Lawrence Ogechukwu Obokoh

University of Wales, UK.

 

Chris Ehiobuche

Berkeley College Garret Mountain Campus, USA.

 

A.E. Akinlo

Obafemi Awolowo University, Nigeria.

 

ABSTRACT

The purpose of this study is to analyze the implications of interest rate deregulation policy on the performance of manufacturing small and medium size businesses in Nigeria. Shortly before the recent global financial crunch, the Nigerian Government embarked on a policy of interest rate deregulation with the assumption that deregulation of interest rate will increase the accessibility and productivity of the financial system through market driven competition of banks. While this may be true with large scale borrowers, the fate of small and medium scale borrowers remains doubtful. Based on the analysis of primary and secondary data, the result of this study reveals a high sensitivity of the return on investment (ROI) of SMEs to interest rate fluctuations and that the conventional wisdom which holds that deregulation of interest rate always improves efficiency maybe incorrect. It also revealed that the ROI of those SMEs without loan obligation were also affected by the changing interest rates that affect other production inputs.

Key words: Interest rates, financial market, return on investment, SMEs, liberalization, deregulation

JEL Code: D23, L25, L26, P20; O16; G21; G28; H27