According to its second-quarter 2023 financial statement, Zenith Bank Plc, one of Nigeria’s Tier-1 banks, has granted loans of N3.517 billion to its managerial employees at a 4% interest rate.
The benchmark interest rate (MPR) of 18.75% set by the Central Bank of Nigeria (CBN) is the context for this disclosure.
These loans were provided by Zenith Bank largely for private financial requirements as well as projects like home construction and land acquisition.
The loans, which fall under the categories of personal loans and home loans, have an average interest rate of 4% and are repayable across several timeframes, from monthly to annually.
The CBN benchmark rate has increased three times in 2023, from 17.5% to 18.75%, while Zenith Bank continues to offer loans to its managerial personnel at a meager 4% interest rate.
MSMEs are the backbone of the Nigerian economy, but their owners find it difficult to get loans that are affordable for their companies because interest rates are sometimes over 25%.
The majority of businesses in Nigeria (approximately 97%) are MSMEs, which also make up nearly half of the country’s GDP (48%) as well.
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Owner of a furniture company Ayola Olumide expressed his insight: “I ran a modest business that was succeeding, so I decided to expand it. I borrowed money from a microfinance company. Things were initially going well until my shop was stolen into in October 2020. I struggled to maintain both my personal and professional lives.
“I ended up taking loans from a variety of sources to keep my business afloat, and things got worse when I turned to online loans,” the author writes.
By using harassment tactics, these online loan sites frequently devolve into new issues.
They frequently send threatening texts to the connections of people who can’t pay their debts back.
According to Kalu Aja, a knowledgeable expert with years of experience in capital market operations, the goal of imposing high-interest loans is to trap borrowers in a never-ending cycle of debt servicing.
“The goal of high-interest loans is to trap you in a never-ending cycle of loan servicing.
You can only buy yourself out of a high-interest loan, he added, adding that you cannot refinance your way out of one.
The working capital provided by banks, according to Kalu, who advises start-ups against borrowing to finance their business ideas, allows you to fill in short-term cash flow shortfalls.
For instance, you know there will be money coming in over the next two weeks, but you need money now to pay your employees. A bank’s line of credit may be accessed, followed by cleanup. Low Annual Percentage Rate (APR), short-term, and extremely quick,” he noted.
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