World Bank urges Nigerian banks to fund job-creating businesses
The World Bank said in Abuja, Nigeria, that the country’s financial system provides insufficient lending to businesses with the greatest potential to create jobs. The bank’s representative, Bertine Kamphuis, called on banks and development finance institutions to direct more capital into productive sectors and infrastructure.
Kamphuis, the World Bank’s lead private sector development specialist, said this during the 19th annual conference of the Chartered Institute of Bankers of Nigeria. As Premium Times Nigeria reports, the conference at the Transcorp Hilton hotel in Abuja was scheduled for September 8–9.
Private sector lending
According to Kamphuis, Nigeria’s domestic credit to the private sector amounts to about 13% of GDP, one of the lowest figures among comparable economies. Micro, small and medium-sized enterprises receive about 1% of loans, while agriculture accounts for about 6%.
The World Bank representative noted that the problem is not so much a lack of capital as its allocation. She estimated the assets of Nigeria’s banking system at approximately $160 billion, while the recent bank recapitalization raised about $3.4 billion in new capital. The country’s pension industry has about $23 billion in assets, while the insurance sector has an estimated $35 billion.
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Financing gap for small businesses
The World Bank described the financing gap for micro, small and medium-sized enterprises as a significant problem. Some such companies are too large for microfinance but too small to meet commercial banks’ requirements and risk appetite. According to the cited data, bank loans are available to fewer than one in 20 such enterprises, while about nine out of 10 operate informally.
Infrastructure was identified as a separate area of financing shortages. According to an estimate based on government analysis, Nigeria needs about $100 billion annually to reduce its infrastructure gap; nearly 60% of this need relates to energy and transport.
The World Bank proposed making more active use of blended finance, guarantees, credit enhancement mechanisms and risk-sharing arrangements. In the organization’s view, such instruments should encourage commercial lenders, pension and insurance funds to invest in projects and companies that the market currently considers too risky. Banks were also advised to rely less on profits from government securities and direct capital to businesses that create jobs.
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