The Centre for the Promotion of Private Enterprise (CPPE) has urged the Nigerian government and the Central Bank of Nigeria (CBN) to change the country’s development finance system. They warned that Nigeria’s productive sectors are facing a funding gap of over N50 trillion.
In a policy brief released on Sunday and signed by CPPE’s CEO, Muda Yusuf, the group said Nigeria’s financial system cannot provide the affordable, long-term funding that manufacturers, farmers, agribusinesses, exporters, and micro, small, and medium-sized enterprises (MSMEs) need.
The CBN had earlier cut back on its development finance efforts to focus on its main job of keeping prices and money stable.
CPPE pointed out that the funding problems come from market failures in the system, not a lack of money. They mentioned high interest rates, short loan terms, strict collateral requirements, low risk appetite among lenders, and not enough patient capital.
“CPPE estimates a conservative current real-sector financing gap of over N50 trillion when we consider unmet financing needs across manufacturing, agriculture, agribusiness, MSMEs, supply chains, and export-oriented companies,” CPPE stated.
The group noted that agriculture makes up more than one-fifth of Nigeria’s Gross Domestic Product (GDP), but it has historically received less than five percent of total bank loans. Manufacturers need medium- and long-term funding to invest in machinery, technology, factory growth, energy infrastructure, and export development.
They argued that such investments cannot be funded sustainably through short-term commercial bank loans at the current interest rates.
Financing challenges
CPPE mentioned that the current monetary policy has made the funding gap worse. They noted that the CBN’s benchmark Monetary Policy Rate (MPR) of 26.5 percent and the Cash Reserve Requirement (CRR) of 45 percent for deposit banks have raised commercial lending rates beyond what many businesses can afford.
While they acknowledged that the CBN’s tightening of monetary policy has improved credibility, exchange-rate stability, and inflation management, the group said monetary stability should help economic growth rather than limit productive investment.
“Price stability and development finance should not be seen as opposing goals. In an economy with deep financing gaps and market failures, monetary stability must be paired with targeted, transparent, and non-inflationary development finance to support manufacturing, agriculture, agribusiness, and other key sectors,” CPPE said.
They added that Nigeria faces a tough task of keeping strict monetary conditions to control inflation while ensuring businesses can access affordable, long-term capital to grow and create jobs.
“The answer is not reckless monetary expansion. It is a well-designed development finance framework that targets clear market failures and keeps monetary policy credible,” CPPE said.
Driving industrial growth
The group argued that expecting regular commercial banks to fund Nigeria’s industrial growth and agricultural change is unrealistic. Banks mainly collect short-term deposits, while productive sectors need funding that lasts five to ten years or more.
They also pointed out that lack of information, heavy reliance on property as collateral, and government borrowing are major reasons banks hesitate to lend to productive businesses.
“Commercial credit decisions, mainly focused on risk-adjusted private returns, usually underfund productive sectors compared to their overall economic and social value. This shows a clear market failure and justifies targeted development finance interventions,” they said.
Need for reform
Although CPPE recognized problems with past CBN intervention programs, such as weak loan recovery, political interference, and selection issues, they argued that these problems call for reforms, not a complete stop to development finance.
“These issues make a strong case for reform, not retreat. Problems in implementation should not be mistaken for a lack of genuine market failures in Nigeria’s financial system,” the group said.
They suggested replacing direct intervention lending with a modern framework that is market-driven, transparent, and based on risk-sharing.
In this new model, the CBN would mainly act as a catalyst, refinancer, and risk-sharing body, while development finance institutions and commercial lenders would handle loan appraisal, disbursement, and recovery.
Recommendations
CPPE urged the government and CBN to strengthen Nigeria’s development finance system by reconsidering their retreat from development finance and avoiding a return to discretionary intervention lending.
They also advised the CBN to recapitalize and strengthen the Bank of Industry and the Bank of Agriculture to be the main sources for long-term financing.
CPPE encouraged the CBN to expand partial credit guarantees and risk-sharing schemes for manufacturing, agriculture, exports, and MSMEs. They also called for creating special long-term refinancing options for manufacturing and agricultural value chains.
They asked the government to improve supply-chain financing, warehouse receipt systems, receivables financing, and movable collateral frameworks. Also, they want better credit information systems and technology-driven risk assessments.
The group urged the government to mobilize pension, insurance, and capital market funds for long-term investments, and to cut down on government borrowing that limits private-sector credit.
They added that the government should ensure good governance, transparency, loan recovery, and independent performance evaluation.
Controlling inflation
CPPE also said that well-designed development finance supports the CBN’s goal of price stability because much of Nigeria’s inflation comes from structural supply issues, not excess demand.
“The key difference is between financing consumption, which mainly boosts demand, and financing productive capacity, which increases supply,” they said.
The group believes that investing in agriculture, manufacturing, energy, storage, and logistics will boost productive capacity and help reduce inflation over time.
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