Cheaper Loan Rates for SMEs Amid Rising Borrowing Costs for Others in Cameroon
By the end of Q3 2024, Cameroon saw its average bank loan rate drop to 8.29%, driven significantly by reduced rates for SMEs. While individual borrowers and other businesses faced rising rates, SMEs benefited from a decline to 8.98%. This disparity is attributed in part to international funding initiatives supporting SME financing. The BEAC’s tight monetary policy continues to affect the broader borrowing landscape.
Recent data from the Bank of Central African States (BEAC) indicates that by the conclusion of the third quarter of 2024, the average bank loan interest rate in Cameroon declined to 8.29%, a fall from 8.91% the previous year. This significant decline of 62 basis points was predominantly influenced by a reduction in borrowing costs for Small and Medium Enterprises (SMEs), which constitute 80% of the nation’s businesses.
While many borrowers experienced increased loan rates, SMEs alongside large corporations enjoyed more favorable conditions. Large enterprises maintained a stable borrowing rate of 6.88%, whereas SMEs saw their average rate decrease sharply from 12.24% in September 2023 to 8.98% a year later, reflecting a reduction of 3.26 percentage points.
The specifics of why banks have relaxed credit conditions for SMEs remain unclear in the BEAC report. Historically, SMEs have encountered challenges in securing financing. However, entities such as the International Finance Corporation (IFC), Proparco, and the European Investment Bank (EIB) have been actively providing funds to Cameroon’s banking sector, facilitating local banks in offering SMEs more attractive loan terms.
Conversely, individual borrowers are facing escalating costs. By late September 2024, the average personal loan rate increased to 15.75%, up from 14.98% the previous year, thus rendering personal borrowing rates 6.77 percentage points steeper than those for SMEs. Additionally, businesses not categorized as SMEs or large corporations are affected, as their average loan rates surged from 14.18% to 18.88%, marking a rise of 470 basis points.
Public sector borrowers and local governments also witnessed heightened interest rates, up from 14.81% to 16.54%. The overall increase in borrowing costs is a result of the BEAC’s stringent monetary policy, initiated in late 2021, which incorporates elevated key interest rates, diminished liquidity injections, and stricter bank funding conditions. While these tactics aim to mitigate inflation, SMEs have successfully attained improved financing options, underscoring their critical position within Cameroon’s economic landscape.
In summary, Cameroon’s SMEs have benefited from a notable reduction in loan rates, with their average borrowing costs decreasing significantly due to interventions from international financial institutions. This occurrence diverges from the rising costs faced by individual borrowers and other businesses. The BEAC’s monetary policies, while tightening conditions for many, have inadvertently improved access to financing for SMEs, which remains vital to the country’s economy.
Original Source: www.businessincameroon.com
