NIGERIA’S PRODUCTIVE ECONOMY still remains stuck in “cash and carry” transactions. The sophistication that is involved in advanced thriving economies is largely deficient in Nigeria today for the fact that business transactions and people involved are mostly doing transactions that entail immediate cash payments. Fewer transactions are credit based, with the attendant restrictions. Financial value chain is an area that is yet to be well articulated or adequately supported with appropriate enabling policies.
Yet, the financial value chain remains so relevant in the sequence of activities, processes and stakeholders involved in the creation, transformation and flow of financial resources between entities in an economic system. This typically includes capital sourcing, cash inflows, financial intermediation, resource allocation, risk management, returns distribution, financial reporting and value optimisation. It is appropriate to ask if the economy is feeling the impacts of the financial institutions in value addition, or are they just operating as mere routine?
Nigeria’s real sector economy still largely remains informal such that, despite the many commercial banks, microfinance banks, few specialised sector-based banks and state-owned entities, the cost of borrowing, or interest rate from official sources is still very high. For instance, the current Monetary Policy Rate (MPR) set by the Central Bank of Nigeria (CBN) is 27.50 percent as of July 31st 2025, up from 27.25 percent last September. By contrast, Ghana’s Central Bank just cut its interest rate from 28 percent to 25 percent a few days ago. Nigeria’s Monetary Policy Committee (MPC) meeting was held on July 22, 2025, where the rate of 27.50 percent was retained for the third consecutive time.
Comparatively, the rates of other countries like Japan, Switzerland, South Korea, Canada and UK are 0.10 percent, 1.25 percent, 3.50 percent, 5.00 percent and 5.25 percent respectively. Interest rates in Nigerian mainstream banks hover around 30 percent per annum while the microfinance banks and informal sources are doing 50 percent and 120 percent respectively. Poor financial education among many business operators and failure of financial services providers to educate and enlighten their customers beyond the routine activities involving forms, cheques, tellers, Fintech instruments such as ATM and cards, tokens and online banking generally are prevalent. They make for transaction convenience but don’t fundamentally add values to business in terms of profitability or a boost to production.
Businesses are suffocating, not only under inflationary pressure, but also under very high interest rates. Not only that, adequate funding in both formal and informal sectors is a problem. Productive enterprises like manufacturing/processing are not well supported. The cost of power generation is high, particularly when using petroleum or diesel. Even bands in electricity tariffs are not helping matters as Band A bills are prohibitive (around ₦229/kWh). Added to this is the rising taxes that come under many names, but essentially are simply multiple taxation. Logistics are now made worse by the very high cost of maintenance of vehicles, fueling, and pilfering.
Short term lending, where they exist, is more prevalent than medium to long-term lending because of uncertainties. Even then, the short terms are too short to help many businesses actualise their very purpose of borrowing as they have to pay back too soon compared with the duration of their business cycles. The harsh economic conditions are not sparing the micro businesses including the microfinance banks in which interest rates and other charges are so high as to make matters worse in repayment. The quest for survival has made some so insensitive to customers’ need in the area of proper management and counseling which has left borrowers struggling under such burden.
Most of these struggling customers get their names published on credit bureau, further compounding the difficulty in borrowing from financial institutions. This is indeed the dilemma of the business entities especially the micro businesses.
Low level of business ethics and poor customer relationship management among some operational staff of banks and the compulsion to follow rule of thumb in dealing with borrowers, including harsh measures only add to the tale of woes these small businesses have to experience. This is often associated with the lack of thinking out of the box as they tend to avoid falling foul of Prudential guidelines and other rules that attract penalties. If the productive sector of Nigeria’s economy is to experience a real boost, the financial value chain must be fixed and the interest of borrowers and their constraints need to be properly factored into the bigger picture. Someone has to start and do it right.