CPPE Calls For Development Finance Reform To Close Nigeria’s Real Sector Financing Gap

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Ikechi Nzeako

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.

A brief by signed by Dr. Muda Yusuf, Chief Executive Officer of the centre, said that 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.

It stated that “these are not merely liquidity problems, adding that 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 ₦50 trillion when account is taken of unmet financing needs across manufacturing, agriculture, agribusiness, MSMEs, supply chains and export-oriented enterprises.

According to Yusuf, the financing mismatch is particularly evident in agriculture, adding that the sector contributes more than one-fifth of GDP, “yet historically receives less than 5% of banking-sector credit.

“Manufacturing similarly requires substantial medium- and long-term funding for machinery, factory expansion, technology, energy infrastructure, automation, backward integration and export development,” he posited.

He averred that the prevailing monetary environment compounds the problem with the Monetary Policy Rate at 26.5% and the Cash Reserve Requirement for deposit money banks at 45%, commercial lending rates are generally incompatible with the expected returns on many productive investments.

However, he argued that monetary stability should serve the broader objectives of investment, productivity, employment and sustainable economic growth, adding that the challenge is to achieve an appropriate balance between price stability and the financing needs of the productive sectors of the economy.

Yusuf posited that “excessive fixation on conventional monetary orthodoxy risks underestimating the structural financing constraints confronting Nigeria’s productive sectors, stating that 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.”

The Chief Executive Officer of CPPE said that 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.

He added that the answer is not indiscriminate monetary expansion but a carefully designed development-finance framework targeted at identifiable market failures and structured to preserve monetary-policy credibility.

He recommended that the government and the CBN should reconsider the seeming retreat from development finance without returning to direct and discretionary intervention lending and should significantly recapitalize, 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.

He urged the two bodies to 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.

Yusuf called for the establishment of specialised long-tenor refinancing windows for manufacturing and agricultural value chains, with participating financial institutions retaining responsibility for credit appraisal and recovery.

He called for deepening of supply-chain, receivables, warehouse-receipt and cash-flow-based financing, while expanding the use of movable collateral and improvement in credit information and technology-driven risk assessment to reduce information asymmetry and the perceived risk of lending to productive enterprises..

He added that closing the financing gap is critical to Nigeria’s industrialisation, agricultural transformation, food security, export diversification, employment creation and long-term economic competitiveness.