CPPE seeks fresh development finance model as Nigeria’s real sector faces over N50trn funding deficit

THE Centre for the Promotion of Private Enterprise (CPPE) has urged the Federal Government and the Central Bank of Nigeria (CBN) to redesign the country’s development finance framework, saying the current financing system is failing to meet the long-term capital needs of productive sectors of the economy.

In a statementr released on Sunday and signed by its Director-General, Dr Muda Yusuf, the economic policy group said manufacturers, agricultural producers, agribusinesses, exporters and micro, small and medium-sized enterprises (MSMEs) are operating with a financing shortfall estimated at more than N50 trillion. According to CPPE, the gap reflects deep-rooted weaknesses in Nigeria’s financial system rather than a simple shortage of liquidity.

It identified high lending rates, short repayment tenors, rigid collateral requirements, weak appetite for long-term lending and inadequate patient capital as major constraints limiting investment across the real sector. These challenges, it said, are compounded by structural issues such as maturity mismatches, information asymmetry and the crowding-out effect of government borrowing.

CPPE noted that the financing imbalance is particularly evident in agriculture, which contributes more than 20 percent of Nigeria’s gross domestic product (GDP) but has historically attracted less than 5 percent of banking-sector credit. Manufacturing also faces significant funding challenges, especially for investments in machinery, technology upgrades, factory expansion, energy infrastructure, automation, backward integration and export development.

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According to the organisation, commercial banks are ill-equipped to finance projects of this nature because they rely largely on short-term deposits, while industrial and agricultural investments typically require financing over 5 to 10 years or more. As a result, affordable long-term financing through development finance institutions remains essential.

The group said current monetary conditions have made the situation more difficult. It pointed out that with the Monetary Policy Rate (MPR) standing at 26.5 percent and the Cash Reserve Requirement (CRR) for deposit money banks at 45 percent, borrowing costs have risen to levels that many productive investments cannot sustain.

Despite this, CPPE acknowledged the CBN’s efforts to restore monetary policy credibility, stabilise the exchange rate and contain inflation. It argued, however, that macroeconomic stability should ultimately support economic expansion by encouraging investment, raising productivity and creating employment.

The organisation warned against viewing inflation control and development finance as competing policy objectives. In its view, Nigeria’s structural financing constraints require carefully targeted and transparently managed intervention mechanisms that complement monetary policy without undermining its credibility.

CPPE said the country’s policy challenge is to maintain sufficiently tight monetary conditions to tackle inflation while ensuring businesses have access to affordable long-term funding needed to increase production and investment. It stressed that the solution lies in well-designed development finance rather than broad-based monetary expansion.

The policy group argued that several market failures continue to justify public intervention. It said commercial lenders are constrained by a mismatch between their short-term liabilities and the long-term financing requirements of manufacturers and agribusinesses.

It also cited information asymmetry and conventional collateral practices as obstacles to credit access. Many businesses with healthy cash flows, inventories, receivables and purchase orders are unable to obtain loans because they lack the landed property or bank guarantees required by lenders, it noted.

Another distortion, CPPE said, is sovereign crowding-out, where attractive yields on government securities encourage financial institutions to channel funds into public debt instead of productive enterprises.

The organisation further argued that sectors such as manufacturing and agriculture generate significant economic benefits, including employment, tax revenue, food security, export earnings, import substitution, technology transfer and foreign exchange conservation, that are not reflected in lenders’ commercial calculations. This, it said, explains why market forces alone cannot adequately finance productive activities.

While acknowledging governance concerns, weak loan recovery, political interference and quasi-fiscal risks associated with previous CBN intervention programmes, CPPE maintained that these shortcomings highlight the need for reforms rather than a withdrawal from development finance.

It proposed replacing discretionary intervention schemes with a transparent, rules-based framework that supports markets instead of replacing them. Such a model, it said, should prioritise wholesale financing, measurable performance, strong governance and protection from political influence.

Under the proposed structure, the CBN would focus on refinancing, risk sharing and catalytic support, while development finance institutions and participating financial institutions would remain responsible for loan appraisal, disbursement and recovery. This approach, CPPE said, would encourage greater private-sector participation, reduce financing risks and improve access to long-term credit without compromising monetary policy.

Among its recommendations, the organisation called for stronger capitalisation of the Bank of Industry and the Bank of Agriculture, expansion of partial credit guarantee programmes, establishment of dedicated refinancing windows for manufacturing and agriculture, wider adoption of supply-chain and movable collateral financing, improved credit information systems and technology-driven risk assessment.

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It also urged the mobilisation of pension, insurance and capital-market funds for productive investments, stronger fiscal discipline to reduce sovereign crowding-out, and improved governance through independent performance monitoring, transparency and stricter repayment discipline.

CPPE argued that development finance, if properly structured, could also help ease inflation over time by addressing supply-side bottlenecks. It noted that Nigeria’s inflation is driven largely by structural factors, including weak agricultural output, high energy and logistics costs, inadequate storage infrastructure and reliance on imported intermediate goods.

According to the organisation, financing projects that expand productive capacity, improve logistics and strengthen energy efficiency would increase supply and help moderate inflation. It distinguished this from consumption-driven financing, which primarily stimulates demand without addressing production constraints.

CPPE concluded that Nigeria’s productive sectors cannot rely solely on conventional commercial banking to close their financing needs. It estimated the funding deficit at over N50 trillion and said the country requires a balanced development finance model that combines commercial discipline with targeted public support.

Rather than choosing between unrestricted intervention lending and a complete retreat from development finance, the organisation advocated a middle path in which the CBN acts as an enabler of private capital through refinancing and risk-sharing arrangements. It said narrowing the financing gap is critical to industrial growth, agricultural transformation, export expansion, food security, job creation and long-term economic competitiveness.