The Centre for the Promotion of Private Enterprise (CPPE) has called for a fundamental rethink of Nigeria’s development-finance architecture to address the severe financing constraints facing manufacturing, agriculture, agribusiness, MSMEs and export-oriented enterprises.
The think tank, in a policy brief by its Chief Executive Officer, Muda Yusuf, on Sunday, said Nigeria’s real sector is confronted with a structural financing deficit characterised by prohibitive interest rates, short loan tenors, stringent collateral requirements, limited risk appetite and inadequate patient capital.
“These are not merely liquidity problems; they reflect deep-seated market failures in the financial system, including maturity mismatches, information asymmetry, sovereign crowding-out and the inability of private lenders to capture the wider economic benefits of real sector investments.
“CPPE estimates a conservative current real-sector financing gap of over N50 trillion when account is taken of unmet financing needs across manufacturing, agriculture, agribusiness, MSMEs, supply chains and export-oriented enterprises,” Mr Yusuf said.
Financing mismatch across key sectors
The CPPE said the financing mismatch is particularly evident in agriculture.
It said the sector contributes more than one-fifth of GDP, yet historically receives less than 5 per cent of banking-sector credit.
It added that manufacturing similarly requires substantial medium and long-term funding for machinery, factory expansion, technology, energy infrastructure, automation, backward integration and export development, noting that such investments cannot be sustainably financed through short-tenor commercial bank credit at prohibitively high interest rates.
“Their long gestation periods and capital-intensive nature require patient, long-term financing at affordable rates, underscoring the critical role of development finance institutions and appropriately structured intervention funds,” it said.
Monetary tightening compounding the problem
The CPPE noted that the prevailing monetary environment compounds the problem. With the Monetary Policy Rate at 26.5 per cent and the Cash Reserve Requirement for deposit money banks at 45 per cent, commercial lending rates are generally incompatible with the expected returns on many productive investments.
While acknowledging the Central Bank of Nigeria’s efforts to restore price stability and exchange-rate stability, CPPE said an “excessive fixation on conventional monetary orthodoxy risks underestimating the structural financing constraints” facing productive sectors.
“Price stability and development finance should not be treated as mutually exclusive objectives. In an economy characterised by deep financing gaps, market failures and severe supply-side constraints, monetary stability must be complemented by carefully targeted, transparently governed and non-inflationary development finance interventions to support manufacturing, agriculture, agribusiness and other strategic productive sectors.
“Nigeria faces an important policy challenge: monetary conditions may need to remain sufficiently restrictive to contain inflation, while the productive economy simultaneously requires affordable, long-tenor capital to expand investment, output and employment.
“The answer is not indiscriminate monetary expansion. It is a carefully designed development-finance framework targeted at identifiable market failures and structured to preserve monetary-policy credibility,” the think tank said.
Fundamental issue is market failure
The CPPE said it is unrealistic to expect conventional commercial banking alone to finance Nigeria’s industrialisation and agricultural transformation, adding that commercial banks largely mobilise short-term deposits, while manufacturers and agribusinesses often require financing for five to ten years or longer.
It said this fundamental maturity mismatch constrains long-term investment.
“Information asymmetry and excessive reliance on landed property and bank-guarantee collateral further exclude otherwise viable businesses. Many enterprises have credible cash flows, receivables, inventories, purchase orders and productive assets but cannot satisfy conventional collateral requirements.”
Mr Yusuf said sovereign crowding-out is another major distortion, noting that attractive risk-adjusted returns on government securities reduce incentives for financial institutions to undertake the more demanding process of originating, monitoring and recovering productive-sector loans.
“It should be strongly emphasised that manufacturing and agribusiness generate substantial positive externalities—including employment creation, tax revenues, technology and skills transfer, food security, export earnings, import substitution and foreign-exchange conservation.
“These economy-wide benefits extend well beyond the financial returns captured by individual lenders and investors. Consequently, commercial credit decisions, driven primarily by risk-adjusted private returns, tend to underfund productive sectors relative to their broader economic and social value. This represents a classic market failure and provides a compelling economic justification for well-targeted development finance interventions,” he said.
Development finance should be redesigned, not diminished
CPPE said it acknowledged the weaknesses associated with previous CBN development-finance interventions, including governance concerns, weak repayment discipline, political influence, beneficiary-selection challenges, quasi-fiscal risks and complications for monetary policy.
These shortcomings, it said, provide a compelling case for reform—not retreat.
“Implementation failures should not be confused with the absence of genuine market failures in Nigeria’s financial system. Nigeria does not need a return to large, discretionary and administratively allocated intervention funds.
“What is required is a modern development-finance framework that is market-correcting rather than market-replacing; wholesale rather than retail; rules-based rather than discretionary; performance-driven rather than allocation-driven; and shielded from political capture,” the CPPE said.
Mr Yusuf said the CBN should operate primarily as a catalyst, refinancer and risk-sharing institution, while development-finance institutions and participating financial institutions undertake credit appraisal, lending and recovery.
“The objective should be to leverage public balance sheets to crowd in private capital, extend loan tenors, reduce identifiable financing risks and channel significantly more credit to productive sectors without undermining monetary-policy credibility,” he said.
Recommendations
CPPE recommended that the government and the CBN should reconsider the seeming retreat from development finance without returning to direct and discretionary intervention lending.
“Significantly recapitalise, scale and strengthen development-finance institutions, especially the Bank of Industry and Bank of Agriculture, as the principal channels for long-term productive-sector financing, scale up partial credit guarantees and risk-sharing mechanisms for manufacturing, agriculture, agribusiness, exports and MSMEs, thereby leveraging limited public resources to crowd in substantially larger volumes of private capital.”
The think tank said the government and CBN should establish specialised long-tenor refinancing windows for manufacturing and agricultural value chains, with participating financial institutions retaining responsibility for credit appraisal and recovery and deepen supply-chain, receivables, warehouse-receipt and cash-flow-based financing, while expanding the use of movable collateral.
“Improve credit information and technology-driven risk assessment to reduce information asymmetry and the perceived risk of lending to productive enterprises, mobilise pension, insurance and capital-market resources into appropriately structured long-term productive investments.
“Reduce sovereign crowding-out through stronger fiscal discipline and a more sustainable domestic borrowing strategy and institutionalise strong governance, transparency and accountability, including independent performance evaluation, repayment discipline and measurable developmental outcomes,” it said.
CPPE said properly designed development finance need not conflict with the CBN’s price-stability mandate.
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It said a significant component of Nigeria’s inflation is structural and supply-driven, reflecting food-supply constraints, high energy and logistics costs, inadequate storage, low agricultural productivity and dependence on imported intermediate inputs.
“Financing that expands agricultural production, manufacturing capacity, energy efficiency, storage and logistics strengthens aggregate supply and can moderate structural inflation over time. The critical distinction is between financing consumption, which principally expands demand, and financing productive capacity, which expands supply,” it added.
Mr Yusuf said Nigeria’s real-sector financing deficit is too large and too structural to be left entirely to conventional commercial finance.
“Available evidence suggests that the financing shortfall runs into tens of trillions of naira, with CPPE placing a prudent indicative range at over N50 trillion, subject to more comprehensive empirical validation.
“The policy choice should therefore not be between unrestricted CBN intervention and complete retreat from development finance. There is a credible middle path. Nigeria needs a transparent, rules-based and commercially disciplined development-finance architecture in which the CBN enables rather than dominates; refinances rather than retails; shares rather than assumes credit risk; and crowds in rather than crowds out private capital.
“Closing the financing gap is critical to Nigeria’s industrialisation, agricultural transformation, food security, export diversification, employment creation and long-term economic competitiveness,” CPPE said.
