DFIs Need Recapitalisation To Tackle N130tn MSME Funding Deficit—CBN

The Central Bank of Nigeria is considering the recapitalisation and restructuring of Development Finance Institutions as part of efforts to address a widening financing gap affecting micro, small, and medium-sized enterprises.

The Deputy Governor for Economic Policy at the apex bank, Muhammad Abdullahi, disclosed this during a panel session at the launch of the Nigeria Development Update by the World Bank in Abuja.

He revealed that a recent review conducted by the CBN showed that existing Development Finance Institutions lack the scale required to meet the credit demands of businesses.

“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 significant gap between available funding and demand highlights the need for comprehensive reforms beyond capital injections.

“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 added that the apex bank, in collaboration with the Ministry of Finance, is reviewing the structure of DFIs to enhance their operational efficiency and effectiveness.

“We are reviewing the entire sector to ensure that we can correct the incentives, improve risk appetite, and also strengthen capital levels,” he said.

According to him, the proposed reforms would introduce stronger market-driven principles into the operations of the 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 explained that ongoing banking sector recapitalisation efforts are expected to complement the reforms by boosting lending capacity across the financial system.

“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, emphasising the need for banks to maintain 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 expressed optimism that a combination of stronger banks and restructured Development Finance Institutions would 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 CBN also noted that 33 banks have met the new minimum capital requirements under its recapitalisation programme, raising a combined N4.65tn to strengthen the financial system.

According to the bank, 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.

Abdullahi further highlighted resilience in business activity despite high borrowing costs, noting that the Purchasing Managers’ Index has remained above the 50-point threshold, indicating continued expansion.