The Central Bank of Nigeria may push for the recapitalisation and restructuring of Development Finance Institutions to address a significant financing gap facing micro, small, and medium-sized enterprises.
The Deputy Governor for Economic Policy at the CBN, Muhammad Abdullahi, disclosed this during a panel session at the launch of the Nigeria Development Update by the World Bank in Abuja, on Tuesday.
He said a recent review by the apex bank found that existing Development Finance Institutions were too small to meet businesses’ credit needs.
“We conducted a review last year of the development finance space. Across all the DFIs in Nigeria, the total asset base is slightly above N8tn, whereas what is required in development finance for MSMEs is over N130tn,” he said.
Abdullahi noted that the wide gap between available funding and demand underscores the need for urgent sectoral reforms beyond simply injecting more capital.
“The only way to address this is not only through public sector capital injections into these institutions, but also by making them bankable and investable,” he said.
He explained that the CBN and the Ministry of Finance were already reviewing the structure of DFIs to improve their effectiveness, including their incentive frameworks and capacity to deploy capital efficiently.
“We are reviewing the entire sector to ensure that we can correct the incentives, improve risk appetite, and also strengthen capital levels,” he added.
According to him, the reform would introduce stronger market-based principles into the operations of Development Finance Institutions.
“We are looking at the structure to see how more market fundamentals can be incorporated, because the way it has been done in the past has not delivered the desired results,” he said.
Abdullahi stressed that improving access to finance for businesses remains a key structural challenge in Nigeria’s economy, particularly for MSMEs.
“Lending to the real sector has always been one of the structural challenges Nigeria’s economy faces in terms of ensuring that credit reaches businesses that require it,” he said.
He noted that recent banking sector recapitalisation efforts were expected to complement DFI reforms by increasing commercial banks’ lending capacity.
“With the N4.6tn raised by the banking sector, there are now more funds that must generate returns for investors. We therefore expect increased credit availability going forward,” he said.
However, he cautioned against a return to directed lending policies, insisting that banks must retain independence in credit decisions.
“What we want to strongly avoid is administratively directed credit. Banks cannot simply be instructed to lend to particular businesses; they must conduct their own risk assessments,” he said.
He added that a combination of stronger banks and reformed Development Finance Institutions would help unlock credit flows to the real sector.
“With the mix of commercial banks with stronger capital bases and DFIs undergoing structural reforms, we expect significantly more credit to flow to businesses,” Abdullahi said.
The apex bank official also highlighted continued resilience in business activity despite high borrowing costs, noting that the Purchasing Managers’ Index has remained above the 50-point threshold, indicating expansion in economic activity.
He expressed optimism that ongoing reforms would gradually improve access to finance and support sustainable growth in the real sector.
The CBN had earlier disclosed that 33 banks met the new minimum capital requirements under its recapitalisation programme, raising a combined N4.65tn to strengthen the financial system.
The apex bank stated that local investors accounted for 72.55 per cent of the funds raised, while international investors contributed 27.45 per cent, reflecting sustained confidence in Nigeria’s banking sector.
