November 9, (THEWILL) – Nigeria’s banking sector has emerged from one of its most consequential recapitalisation exercises with a stronger capital base, greater capacity to absorb risks and a renewed expectation that the financial system will do more for the economy.
But the real test is only beginning
The Central Bank of Nigeria’s recapitalisation programme has raised about N4.65 trillion in fresh capital across the banking industry. Yet the size of the capital raised will mean little to manufacturers, farmers, technology businesses, transport operators, healthcare providers and millions of micro, small and medium enterprises if the money does not translate into affordable, accessible and appropriately structured credit.
Indeed, the CBN itself has acknowledged that recapitalisation must ultimately be judged by what banks do with their stronger balance sheets. In September, the apex bank urged lenders to turn the N4.65 trillion raised into productive loans supporting businesses, infrastructure and economic growth.
That warning exposes the central contradiction confronting the Nigerian economy. The banking system may have more capital, but capital adequacy is not the same thing as productive credit. A bank can be extremely liquid and still be unwilling to finance a five-year manufacturing project, a power project, an agricultural processing plant or an MSME without substantial collateral.
This is where Nigeria’s development finance institutions must become much more consequential.
The Bank of Industry (BOI) and Development Bank of Nigeria (DBN) were created precisely because the conventional banking model is not always adequate for development financing.
The time has therefore come for the government, regulators, development partners and the private sector to deliberately strengthen these institutions, expand their funding capacity and give them the tools to provide the long-term, affordable and risk-sharing finance that Nigeria’s productive economy desperately needs.
The credit paradox
Nigeria does not necessarily have a shortage of money in the financial system. It has a shortage of appropriately structured money. That distinction is critical.
Commercial banks operate under legitimate prudential obligations. They must protect depositors, maintain asset quality and generate returns for shareholders. Consequently, when faced with a choice between lending to a relatively risky SME for five years and investing in comparatively safer short-term instruments, the incentives can be heavily tilted towards the latter. The result is a persistent mismatch between the needs of the real economy and the structure of available finance.
A recent assessment by the Centre for the Promotion of Private Enterprise, led by economist Dr Muda Yusuf, estimated that Nigeria’s real sector faces a financing gap exceeding N50 trillion, covering manufacturing, agriculture, agribusiness, MSMEs, supply chains and export-oriented enterprises. The organisation identified high interest rates, short loan tenors, stringent collateral requirements and inadequate patient capital as major structural constraints.
Even more troubling is the position of SMEs within the banking system. CPPE has estimated that SME credit accounts for only about one per cent of total bank credit, compared with roughly five per cent in sub-Saharan Africa. This is despite the enormous contribution of MSMEs to employment, income generation and domestic production. This is the problem recapitalisation alone cannot solve.
The additional capital may allow commercial banks to undertake bigger transactions, absorb larger risks and expand their balance sheets. But it does not automatically alter their fundamental risk calculus. That is why development finance matters.
BOI already demonstrating what is possible
There is evidence that when financing is deliberately designed around development objectives, the results can be substantially different.
BOI reported that it disbursed N644.9 billion in 2025, its largest annual financing volume, across nano, micro, small, medium and large enterprises. More than 30 per cent went to MSMEs, while more than 20 per cent supported women- and youth-led businesses. The bank estimated that its interventions supported about 1.68 million jobs across various value chains.
The sectoral allocation is particularly instructive BOI’s 2025 lending included N202 billion for agro-allied enterprises, N100 billion for critical infrastructure, N79 billion for manufacturing, N77 billion for extractive industries and N55 billion for services.
These are exactly the sectors Nigeria needs to finance if it is serious about moving from macroeconomic stabilisation to productive economic transformation.
The bank’s support for infrastructure also demonstrates the catalytic role a development institution can play. Its 2025 financing included investments in broadband, power, aviation and transportation. It also supported mini-grid deployment and connected thousands of new customers to electricity.
More importantly, BOI’s model is not limited to writing cheques. Its MSME programme combines financing with business advisory services, capacity building, value-chain development and longer repayment periods.
Its SME lending products can have tenors of three to five years, with moratoriums of between three and 12 months depending on project requirements. That is fundamentally different from forcing a manufacturer to finance a five-year productive investment with a short-term facility.
DBN: Bridging the gap between banks and MSMEs
The Development Bank of Nigeria offers another important model. Rather than attempting to replace commercial banks, DBN operates largely through participating financial institutions, providing wholesale funding, partial credit guarantees and technical assistance to enable them to lend more effectively to MSMEs. That model deserves far greater scale.
DBN says its long-term finance scheme enables participating financial institutions to support MSME lending for periods of up to 10 years. As of December 2025, the institution reported more than N1.4 trillion in total disbursements through 84 participating financial institutions.
Separately, DBN disclosed that it had facilitated more than one million end-beneficiary loans since inception, with women accounting for 77 percent of beneficiaries and young people 28 per cent. This is the kind of financial architecture Nigeria should now be expanding, and the advantage is obvious.
Instead of expecting every commercial bank to suddenly become a development bank, DBN and BOI can provide the longer-term liquidity and risk-sharing instruments that make MSME lending more attractive to conventional financial institutions. It can therefore use one naira of development capital to mobilise several naira of private-sector financing. That multiplier effect should be at the centre of Nigeria’s development-finance strategy.
The missing ingredient is patient capital
For Nigeria’s MSMEs, the issue is not simply whether a loan is available. It is whether the loan is affordable, long enough and structured around the business’s cash flow.
A farmer cannot reasonably be expected to repay a facility before the production cycle is completed. A manufacturer purchasing machinery needs time for the equipment to begin generating sufficient cash flow. A healthcare provider investing in diagnostic equipment needs a longer repayment horizon. A renewable-energy project requires patient capital before reaching full commercial maturity.
Yet the conventional financial system frequently prices and structures such investments as though every business were a trading operation. This is where BOI and DBN must become much more aggressive.
Nigeria needs a new generation of development-finance products built around five-year, seven-year and even 10-year money, depending on the sector, with appropriate moratoriums and repayment structures. Interest rates must also be sufficiently concessionary to make productive investment viable.
The objective should not be to create cheap money that encourages waste or patronage. Rather, it should be to create appropriately priced money for economically productive projects that commercial banks may otherwise avoid because of their longer gestation periods or perceived risks.
READ ALSO:
Development finance must not become another government intervention fund
There is, however, a major concern. The solution cannot simply be another round of government-directed lending in which funds are announced with fanfare, politically connected beneficiaries emerge, recoveries deteriorate and taxpayers eventually absorb the losses.
Development finance must be commercially disciplined but development-oriented. Projects should be appraised professionally. Disbursements should be tied to milestones. Beneficiaries should be monitored. Loan recovery must matter. Performance indicators should go beyond the amount disbursed.
BOI’s move towards measuring development impact is therefore significant. Its inaugural 2025 Development Impact Report sought to measure outcomes such as jobs, infrastructure, inclusion and environmental impact rather than merely celebrating loan volumes. That approach should become standard across Nigeria’s development-finance institutions.
The question should no longer be: How much did the institutions lend?
It should be: How many factories became operational? How many jobs were created? How much domestic production replaced imports? How much agricultural output increased? How many businesses graduated from micro to small, and small to medium? How much additional tax revenue did supported businesses generate? Those are the metrics that matter.
Government must strengthen the institutions
If Nigeria genuinely wants BOI and DBN to carry a larger share of the development-finance burden, government must give them the balance sheets to do so.
This means increasing access to long-term domestic and international funding, strengthening guarantees where appropriate, supporting credit-enhancement mechanisms and helping development banks mobilise institutional capital.
The African Development Bank’s recent intervention offers a useful template. In May 2026, AfDB approved a $200 million long-term financing facility for BOI, targeting infrastructure, transport, agro-food processing, healthcare, pharmaceuticals and green industrialisation. At least 30 per cent of the proceeds is expected to benefit SMEs. Nigeria needs much more of this.
Development partners should be encouraged to provide long-tenor financing to BOI and DBN. Pension funds, insurance companies and other institutional investors should also be explored as potential sources of patient domestic capital, subject to appropriate prudential safeguards.
The government can further support the system through credit guarantees rather than attempting to carry the entire lending burden itself. That is a better use of public resources.
Sam Diala is a Bloomberg Certified Financial Journalist with over a decade of experience in reporting Business and Economy. He is Business Editor at THEWILL Newspaper, and believes that work, not wishes, creates wealth.
