Analysis of Interest Rate Spread and its Implications for Small and Medium Enterprise Financing in Ogun State

The wide interest rate spread between deposit and lending rates in Nigeria is a well-documented structural inefficiency that disproportionately burdens small and medium enterprises seeking formal bank financing. This study analyses the interest rate spread and its implications for small and medium enterprise financing in Ogun State, South West Nigeria. A mixed-methods research design was adopted, combining a survey of 200 small and medium enterprise owners in Abeokuta, Sagamu, and Ijebu-Ode with secondary data on interest rate spreads from the Central Bank of Nigeria Statistical Bulletin for the period 2015 to 2022. Data analysis employed descriptive statistics, chi-square tests, and logistic regression. Results showed that 74% of small and medium enterprise owners cited high lending rates as the primary barrier to formal bank credit access. Logistic regression revealed that businesses facing interest rates above 25% per annum were 4.2 times more likely to rely on informal credit sources compared to those offered rates below 20% (OR = 4.2, p < 0.01). The study concludes that the interest rate spread of between 10% and 15% recorded in Nigerian banks significantly suppresses formal credit demand among small and medium enterprises in Ogun State. It recommends targeted interest rate subsidy schemes for small and medium enterprises operating in priority sectors, coordinated between the Central Bank of Nigeria and the Bank of Industry. Keywords: interest rate spread, small and medium enterprises, bank financing, Ogun State, credit access