Economist Seeks BOI, BOA Recapitalisation As High Interest Rates Deepen N50trn Funding Gap

The Centre for the Promotion of Private Enterprise (CPPE) has urged the Federal Government and the Central Bank of Nigeria (CBN) to recapitalise the Bank of Industry (BOI) and the Bank of Agriculture (BOA), warning that soaring interest rates have widened Nigeria’s real-sector financing gap to an estimated N50 trillion.

In a policy brief released yesterday, CPPE director and chief executive officer, Dr Muda Yusuf, said the country’s current development finance architecture is inadequate to meet the long-term funding needs of manufacturing, agriculture, agribusiness and Micro, Small and Medium Enterprises (MSMEs).

According to him, the huge financing deficit reflects deep structural weaknesses in Nigeria’s financial system that conventional commercial bank lending cannot address.

“The real sector is constrained by prohibitive interest rates, short loan tenors, stringent collateral requirements, limited risk appetite and inadequate patient capital,” Yusuf said.

“This is not just a liquidity problem. It reflects maturity mismatches, information asymmetry, sovereign crowding-out and the inability of private lenders to capture the wider economic benefits of real sector investments.”

He noted that agriculture, which contributes more than 20 per cent of Nigeria’s Gross Domestic Product (GDP), receives less than five per cent of total banking sector credit, while manufacturers require medium- and long-term financing for machinery, energy, automation and export development that short-term commercial loans cannot provide.

Yusuf argued that with the Monetary Policy Rate (MPR) at 26.5 per cent and the Cash Reserve Ratio (CRR) at 45 per cent, commercial lending rates have become too high to support productive investments.

While acknowledging the CBN’s efforts to stabilise inflation and the foreign exchange market, he maintained that monetary stability should not come at the expense of investment, industrial growth and job creation.

“The answer is not indiscriminate monetary expansion. It is a carefully designed development-finance framework targeted at identifiable market failures,” he said.

Rather than a return to large discretionary intervention funds managed by the CBN, CPPE advocated a rules-based, performance-driven development finance framework in which the apex bank serves as a catalyst, refinancer and risk-sharing institution.

To bridge the N50 trillion funding gap without compromising monetary policy objectives, the Centre called for the recapitalisation of the Bank of Industry and the Bank of Agriculture to strengthen their capacity to provide long-term financing to productive sectors.

It also recommended expanding partial credit guarantees and risk-sharing mechanisms to encourage private sector investment in manufacturing, agriculture and MSMEs.

Other proposals include creating specialised long-term refinancing facilities for agricultural and manufacturing value chains, deepening supply-chain financing, expanding the use of movable assets as collateral, improving credit information systems through technology-driven risk assessment, and mobilising long-term funds from pension, insurance and capital markets.

The Centre further stressed the need for stronger fiscal discipline to reduce sovereign crowding-out, while calling for improved institutional governance and transparency to enhance the effectiveness of development finance.

According to CPPE, a well-structured development finance system would complement, rather than conflict with, the CBN’s price stability mandate.

It argued that much of Nigeria’s inflation is supply-driven and could be moderated by financing that boosts food production, manufacturing capacity, energy supply and logistics infrastructure.

“Closing the financing gap is critical to industrialisation, food security, export diversification and employment creation,” the Centre stated.