The Centre for the Promotion of Private Enterprise (CPPE) has called for a comprehensive reform of Nigeria’s development finance architecture, warning that the country’s real sector is grappling with a financing gap estimated at over N50 trillion.
In a policy brief released on Sunday, CPPE said the financing constraints affecting manufacturing, agriculture, agribusiness, micro, small and medium enterprises (MSMEs), supply chains and export-oriented businesses have become a major obstacle to industrialisation, job creation and economic growth.
The organisation’s Chief Executive Officer, Dr. Muda Yusuf, said the real sector faces structural financing challenges characterised by high interest rates, short loan tenors, stringent collateral requirements, limited risk appetite by lenders and inadequate long-term capital.
According to him, these challenges reflect deeper market failures in Nigeria’s financial system, including maturity mismatches, information asymmetry, sovereign crowding-out and the inability of private lenders to capture the broader economic benefits of productive sector investments.
CPPE estimated that the financing shortfall across manufacturing, agriculture, agribusiness, MSMEs and export-oriented enterprises exceeds N50 trillion.
The organisation noted that agriculture contributes more than one-fifth of Nigeria’s Gross Domestic Product but historically receives less than five per cent of banking sector credit, while manufacturing requires substantial medium- and long-term funding for machinery, factory expansion, technology, energy infrastructure and export development.
It argued that such investments cannot be sustainably financed through short-term commercial bank loans at prevailing interest rates.
CPPE said the current monetary environment has worsened financing conditions, citing the Monetary Policy Rate of 26.5 per cent and the Cash Reserve Ratio of 45 per cent for deposit money banks as major factors driving commercial lending rates to levels that are incompatible with many productive investments.
While acknowledging the Central Bank of Nigeria’s efforts to restore monetary policy credibility, stabilise the exchange rate and moderate inflation, the organisation stressed that price stability should support investment, productivity, employment and sustainable growth.
It warned that excessive reliance on conventional monetary tightening risks underestimating the structural financing constraints facing Nigeria’s productive sectors.
According to CPPE, monetary stability and development finance should not be viewed as competing objectives, adding that targeted and transparently governed development finance interventions are necessary to address identifiable market failures.
The organisation argued that commercial banks alone cannot finance Nigeria’s industrialisation and agricultural transformation because they largely mobilise short-term deposits, while manufacturers and agribusinesses require financing for five to 10 years or more.
It also identified excessive dependence on landed property as collateral and the attractiveness of government securities as major factors limiting credit to productive sectors.
CPPE said manufacturing and agribusiness generate significant positive externalities, including employment, tax revenues, technology transfer, food security, export earnings, import substitution and foreign exchange conservation, making a strong economic case for development finance interventions.
The organisation acknowledged governance weaknesses associated with previous CBN intervention programmes, including weak repayment discipline, political influence and quasi-fiscal risks, but insisted that these shortcomings justify reform rather than abandonment of development finance.
It proposed a new development finance framework that is market-correcting rather than market-replacing, rules-based rather than discretionary, and designed to crowd in private capital instead of displacing it.
Among its recommendations, CPPE urged the Federal Government and the CBN to strengthen and recapitalise the Bank of Industry and the Bank of Agriculture, expand partial credit guarantees and risk-sharing mechanisms, establish specialised long-tenor refinancing windows for manufacturing and agriculture, deepen cash-flow and movable collateral financing, improve credit information systems, mobilise pension and insurance funds for productive investments, reduce sovereign crowding-out through fiscal discipline and institutionalise stronger governance and accountability mechanisms.
The organisation also argued that well-designed development finance could complement the CBN’s inflation objective by expanding agricultural production, manufacturing capacity, energy efficiency, storage and logistics infrastructure.
CPPE concluded that Nigeria’s real sector financing deficit is too large and structural to be addressed solely through conventional commercial banking.
It called for a transparent, commercially disciplined development finance architecture in which the CBN acts as a catalyst, refinancer and risk-sharing institution while development finance institutions and participating financial institutions undertake credit appraisal, lending and recovery.
According to Yusuf, closing the financing gap is essential for Nigeria’s industrialisation, agricultural transformation, food security, export diversification, employment creation and long-term economic competitiveness.
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