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Nigeria’s economic development threatened by undeveloped financial sector

Nigeria’s economic development threatened by undeveloped financial sector

Nigeria’s relatively underdeveloped financial sector has been cited as one of the factors threatening the on-going efforts by the President Muhammadu Buhari led administration to move the nation’s economy away from oil dependence.

At the moment, the nation’s financial sector is focused more on consumer loans, with short tenor, rather than producer loans required to finance the diversification initiative of the government.

Muhammadu Sagagi, a Kano based economist, who made this observation, in Kano, noted that with the situation at hand, entrepreneurs in the country may not be able to finance long-term investment.

According to him, comparatively, Nigeria which is currently adjudged the largest Economy in Africa, has a small ratio of domestic credit to GDP, when compared with Africa’s second biggest economy, South–Africa.

“Nigeria has a relatively underdeveloped financial sector –with a small ratio of domestic credit to GDP compared to 80% in South –Africa, 40% in Brazil, 30% in Russia and slightly more than 20% in Indonesia and Kenya, respectively.

“Major issues affecting the development of the sector are: high cost of credit, excessive collateral requirements which in the country today is about 170 of loan, and focus on consumer loans, with short tenors, rather than producer loans”, he explained.

Sagagi added that less than 30% of Nigerian firms have a loan or overdraft facility from a bank, compared with 60 % in South Africa, and over 92 % in Brazil.

On the variation of loan disbursement in the country, he revealed that Lagos state, Nigeria’s economic capital receives 66% of total loans disbursed by banks to firms in the country. Other states in the South receive 33%, Kano and Kaduna 18%, and other states in the North receive 11% of these loans.

The increase in production cost being experienced by firms in the country as well as the stifle performance of markets, Economists observe, are undermining the incentives to take risk and invest in capital.

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