Interest Rate Fluctuation and GDP performance of small and medium enterprises: evidence from Nigeria

The existence of Small and medium-sized Enterprises (SMEs) is necessary in any economic, but their growth and survival are hindered by macroeconomic conditions, especially the interest rates fluctuation. This study investigates how changes in interest rate affect GDP performance of SMEs in an economy. The study specially focuses on the Lagos State SMEs in Nigeria. The study applies time-series data collated from the various governmental organizations like IMF World Bank, and SMEs Development Agency of Nigeria from 2001 to 2024. The research employs descriptive statistics, ordinary least squares regression, and correlation analysis and diagnostics tests as tools for data analysis. The findings discover that interest rates volatility have a significant negative effect on the SMEs’ GDP performance, suggesting that growing in borrowing costs hinder the company productivity and growth. Additionally, there are negative significant associations between the exchange rate volatility, inflation and the SME success. The findings also disclose that high percentage increase in SMEs GDP contribution to country economy is a function of macroeconomic factors positive impact. The research concludes that a major obstacle hinders the SMEs expansion in Lagos State, Nigeria is the macroeconomic instability, particularly the interest rate volatility. The study recommends that governments of Nigeria and other emerging economies should create more supportive lending facilities for SMEs for their survival. Also, their governments should give interest rate stabilization a top priority to improve SMEs’ financial inclusion to enable them contribute their countries economic growth.