Nigerian companies turn to commercial papers, raise N1.61trn amid high rates

In a year when borrowing costs climbed to their highest levels in recent memory, Nigerian companies quietly rewrote the rules of financing. Rather than retreating from debt, they shifted away from banks, raising N1.61 trillion from the capital market through commercial papers (CPs) in 2025.

The amount represents a 40 percent surge from the N1.15 trillion raised a year earlier, based on data compiled from FMDQ.

This funding boom unfolded under a restrictive monetary climate shaped by the Central Bank of Nigeria (CBN)’s sharp policy tightening in 2024. The measures, designed to rein in inflation and defend the naira, pushed lending rates to levels that many corporates found unsustainable. As a result, traditional bank credit became both expensive and harder to access.

Instead of slowing operations, firms began sourcing short-term funding directly from investors. Commercial paper, which is a fast, flexible debt instrument requiring fewer formalities than bank loans, became the preferred channel for working capital, trade finance, and short-term liquidity.

FMDQ figures show that the average CP discount rate climbed to 22.38 percent in 2025, with the average tenor stretching to 233 days. In 2024, rates stood at 21.69 percent with a 225-day tenor. These levels represent the highest pricing seen in recent years. banks’ lending rates, on the other hand, hovered from 28 percent to 45 percent, making CPs a more affordable opion for Nigerian companies.

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Analysts say the pricing reflects the CBN’s decision to keep rates elevated for most of the year. Only a 50-basis-point cut in the third quarter (Q3) provided marginal relief, leaving borrowing costs largely unchanged.

Interestingly, companies did not shorten their borrowing horizons. The slight extension in tenor suggests issuers were comfortable locking in funding for longer, despite the high cost. This also hints at stronger investor trust in corporate balance sheets and rising appetite for high-yield short-term instruments.

The rapid expansion of the CP market signals a structural change in how Nigerian firms finance operations. Rather than relying solely on banks, corporates are building direct relationships with pension funds, asset managers, and institutional investors, reducing dependence on traditional lenders.

A structural shift

For investors, the boom has created a new income stream. Elevated discount rates make CPs attractive, but they also demand more careful credit screening as default risks rise in a tight economy.

Industry perspective

According to Head of Investments at the UK-based Assets Capital, Mr Osita Ochai, banks’ lending rates had become elevated due to the high Monetary Policy Rate (MPR), which was set at 27 percent by the CBN.

“Commercial papers have become an easier route for some firms due to the high cost of lending from Nigerian banks. It will continue to be the much easier route as long as rates stay high and banks remain cautious. It is cheaper and much easier to embark upon.”

What are CPs?

CPs are short-term debt obligations of corporations. They can be issued for tenors of up to 270 days in the Nigerian financial markets. Like treasury bills, they are typically issued at a discount and redeemed at par (face value amount) upon maturity. They are also typically issued by large corporations with good credit ratings and history, according to FMDQ. CPs are quoted and traded/reported on relevant platforms of FMDQ Exchange.

It is used to raise funds for working capital and other short-term needs, and is generally considered to be a low-risk investment, according to Cowrywise, an investment banker.

“Due to its short maturity and high credit quality, commercial paper is considered a safe and liquid investment option for businesses and investors alike,” the company further says.

“CPs are usually issued by financially stable companies with a strong credit rating.It is not backed by any collateral, so it is considered unsecured debt. Investors commit based on the company’s financial strength, and ability to generate income. Commercial paper cannot be converted into equity in the issuing company,” Cowrywise adds.