Aligning Finance With Growth: Unlocking Credit for Nigeria’s Real Sector

Nigeria’s financial system is flush with cash, yet its real economy is gasping for credit. On paper, liquidity is abundant. In practice, factories slow down, farms struggle to scale, and small businesses operate at survival level. This contradiction sits at the heart of Nigeria’s current economic challenge: money is moving, but it is not working where it matters most.

Recent Treasury Bill auctions have exposed the scale of this imbalance. Investor demand for government securities has surged, with long-dated instruments drawing trillions of naira in subscriptions far above what was offered. Stop rates have fallen sharply, signalling intense competition for risk-free returns. Shorter tenors, however, have attracted weaker demand, reflecting caution around near-term economic conditions. For investors, the logic is straightforward: safety, liquidity, and predictable income. For the real sector, the outcome is far less reassuring.

Banks have increasingly followed these incentives. Government securities offer strong yields with minimal risk and low regulatory cost. Lending to businesses, by contrast, comes with higher default risk, inflation pressure, and exposure to exchange rate volatility. As a result, banks have expanded their investment portfolios while credit to the private sector remains subdued. Liquidity circulates within the financial system rather than flowing into productive economic activity.

The Cost of Playing It Safe

This preference for safety carries real economic consequences. Manufacturers struggle to finance expansion and modernise equipment. Agricultural producers face difficulties accessing affordable seasonal loans. SMEs, which form the backbone of employment, are often forced into high-cost microfinance borrowing that limits growth and weakens resilience. When businesses cannot access sustainable credit, output slows, jobs are lost, and productivity suffers.

Economic data already reflects this pressure. Business confidence has softened, and private sector activity has shown signs of contraction after a period of fragile recovery. While government borrowing costs decline due to strong investor appetite, the broader economy fails to benefit from cheaper capital. Financial markets deepen, but the productive base remains constrained.

Nigeria’s challenge is not the absence of money but the absence of alignment. Without mechanisms that reduce the risk of real sector lending, capital will continue to favour government paper. Addressing this imbalance requires deliberate policy action, improved macroeconomic stability, and incentives that make productive lending commercially attractive.

An economy cannot grow on Treasury Bills alone. Sustainable growth depends on businesses that produce, employ, and innovate. Until liquidity finds its way back into these channels, Nigeria’s financial system will continue to look strong on the surface while the real economy struggles underneath.

In essence Liquidity is plentiful, but growth will only follow when capital finds the courage to leave safety and invest in the real economy.