DFI recapitalisation next on CBN agenda, plans to close N130trn MSME funding gap 

The Central Bank of Nigeria has plans to recapitalise and restructure development finance institutions (DFIs) as part of efforts to address a widening financing gap facing micro, small and medium enterprises (MSMEs) in Nigeria.

This was revealed by the Deputy Governor for Economic Policy at the CBN, Muhammad Sani Abdullahi, during a panel session at the launch of the Nigeria Development Update (NDU) by the World Bank in Abuja on Tuesday.

Abdullahi said a recent review by the apex bank showed that the current size of DFIs is inadequate relative to the credit needs of businesses.
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“What we are trying to do is also to ensure that the Development Finance Institutions are able to really live up to their mandates.

And that will necessarily require also a recapitalisation of them. But not only capital.

“We did a review last year around the whole development finance space. And out of all the DFIs in Nigeria, what we have is a total asset base of over N8 trillion, whereas what is really required in terms of development finance for MSMEs is over N130 trillion,” he said.

He said that the significant gap highlights the urgency for reforms that go beyond capital injection.

“The only way to do it is not only through public sector injecting capital in these agencies, but it’s also to make them bankable, to make them investable,” he added. 

According to Abdullahi, the CBN is working with the Ministry of Finance to overhaul the structure of DFIs to improve their effectiveness.

“We’re looking at that entire sector to ensure that we can correct the incentives, improve the risk appetite, and also ensure that capital is improved,” he said. 

He added that the planned reforms would introduce stronger market-based principles into the operations of DFIs.

“We’re looking at it structurally to see how more market fundamentals can go into these things because the way it’s been done in the past has not worked,” he stated. 

The CBN official linked the reform push to recent banking sector recapitalisation, noting that it would increase lending capacity across the system.
“Now, with the N4.6 trillion raised by the banking sector, there’s a lot more funds that have to return ROI for their investors. And so we envisage going forward that there’ll be a lot more credit that’s available,” he said. 

He emphasised, however, that the apex bank would avoid directing banks on where to lend.

“What we do want to shy away from very strongly is this administratively directed credit… you cannot direct banks to lend to particular businesses. Banks have to do their own risk assessments,” Abdullahi said. 

Abdullahi reiterated that access to finance remains a longstanding constraint for businesses, particularly MSMEs. “I think lending to the real sector has always been one of the structural challenges that Nigeria’s economy faces in terms of how to get that credit to the businesses that require it,” he said. 

He added that combining stronger commercial banks with reformed DFIs could unlock credit flows to the real sector.

“With the mix of the commercial banks with larger capital, with DFIs undergoing some level of structural reforms and we see a lot more credit being able to flow,” he said. 

The Deputy Governor also pointed to resilience in business activity despite high borrowing costs, noting that the Purchasing Managers’ Index has remained above the 50-point threshold, signalling expansion.

He expressed optimism that ongoing reforms would gradually improve access to finance and support economic growth.