MANUFACTURERS ASSOCIATION OF NIGERIA POSITION ON THE SHARP DECLINE IN CREDIT TO THE MANUFACTURING SECTOR
1.0.Introduction
This chart portrays concerning evidence of severe financial constraint besetting the Nigerian manufacturing sector.
According to the data, commercial bank credit allocation to manufacturing contracted by ₦1.92 trillion from ₦8.53 trillion in December 2024 to ₦6.61 trillion in December 2025. This represents a significant year-on-year contraction of -22.5%, which is particularly disturbing, given that manufacturing recorded one of the largest credit contractions among the top sectors, surpassed only by the General Services sector at -25%.
• This steep decline leaves manufacturing lagging far behind the extractive Oil & Gas Industry (₦10.59 trillion) and a booming Finance sector (₦9.24 trillion), demonstrating a systemic preference for speculative and rent-seeking activities over tangible productivity.
• The 22.5% credit squeeze of ₦1.92 trillion from the manufacturing sector stands in unflattering contrast to contemporary global peers in 2025. For instance, India’s bank credit to industry grew by a robust 9.6% year-on-year by late 2025 as part of a deliberate 15% industrial credit expansion, while Vietnam aggressively projected a 19% to 20% credit growth target for 2025 to intentionally fuel its processing and manufacturing engines.
• Clearly, the Nigerian manufacturing sector cannot thrive without sustainable and growing financial foundations. The reduction in credit access could further limit capacity utilization, stall technological upgrades and hinder job creation. For the wider economy, reducing financial support to manufacturing could slow down vital diversification efforts, leaving the nation more vulnerable to external commodity shocks and supply-driven inflation.
2.0. Major Factors Responsible for Lower Access to Credit
A review of recent economic data, industry reports and insights from key operators reveals that the contracted distribution of credit to manufacturing is rooted in a toxic combination of prohibitive interest rates, structural bureaucracy and policy misalignment.
2.1. The Prohibitive Interest Rates
• The primary barrier between manufacturers and financial bank liquidity is the exorbitant cost of borrowing. While the CBN has recently made slight policy adjustments by trimming the Monetary Policy Rate (MPR) to 26.5% to signal disinflation, commercial lending rates remain actively hostile to manufacturing sector expansion.
• As of May 2026, manufacturers’ costs of borrowing remain exploitatively high at an average of 27% prime lending rates and 35.6% maximum lending rates in major commercial banks. Creating an environment where borrowing for long-term manufacturing capital expenditure is financially unviable.
2.2. Elevated Cash Reserve Requirements & Risk Aversion of Commercial Banks
• The CBN maintained a stringent Cash Reserve Ratio of up to 45%–50% for commercial banks. This policy effectively constrained a large portion of loanable banking liquidity.
• Another factor is the systemic risk aversion of commercial banks. A critical flaw in the architecture of government interventions is the reliance on commercial banks to act as Participating Financial Institutions (PFIs). The CBN provides the liquidity at lower rates, but PFIs assume the credit risk.
• Consequently, commercial banks impose their standard, risk-averse commercial criteria on these developmental funds. Manufacturers are subsequently asked to provide collateral and meet equity contributions that they cannot afford.
• Therefore, while the funds exist to help struggling manufacturers, they can only be accessed by large companies that are already highly liquid and secure.
2.3. Non-implementation of the ₦1 Trillion Manufacturing Stabilization Plan
• The persistent non-implementation of the ₦1 trillion Manufacturing Stabilization Fund, despite its prominent inclusion in the Accelerated Stabilization and Advancement Plan (ASAP) since 2024, remains an issue of promise not kept for the manufacturing sector. For two years, we have awaited this fund to ameliorate the credit crunch in the sector and to cushion the impact of the twin shocks of currency devaluation and astronomical energy costs. There appears to be no visible effort at delivering on that score.
• This delay is worrisome. It has left genuine manufacturers to navigate over 30% interest rate environment without the promised fiscal cushion.
• As factories continue to scale down operations or exit the business altogether, the gap between policy promises and the actual disbursement is symptomatic of an implementation deficit that continues to stifle Nigeria’s industrial potential.
2.4. The CBN’s Policy Shift to Halt Direct Development Financing
• The steep 22.5% contraction in manufacturing credit could also be linked to the Central Bank of Nigeria’s (CBN) policy decision to halt its direct development finance interventions. By suspending new applications for real-sector support windows like the Real Sector Support Fund (RSSF), the monetary authority has abruptly cut off manufacturers from vital single-digit concessionary capital.
• This forces industrialists into a hostile open market where commercial lending rates soar past 35%. In an attempt to tame inflation by mopping up excess liquidity, this strategy inadvertently starves the supply side of the economy, leaving the nation structurally incapable of producing its way out of inflationary pressures.
• Furthermore, the abrupt withdrawal of the central bank’s de-risking buffers has drastically amplified commercial bank risk aversion. With the entire credit-risk burden now resting on Participating Financial Institutions (PFIs), lenders have actively redirected capital away from long-term factory investments toward short-term, high-yield financial trades.
• To compound the crisis, the CBN’s strategy of outsourcing development financing exclusively to specialized Development Finance Institutions (DFIs), such as the Bank of Industry (BOI), creates a severe institutional transmission deficit. As these undercapitalized DFIs lack the sovereign liquidity-generation capacity of the central bank, this structural mismatch guarantees that Nigeria’s manufacturing frontline remains permanently starved of operational capital.
3.0. Critical Implications of the Manufacturing Credit Contraction
The steep -22.5% year-on-year contraction in commercial credit allocation to manufacturing creates severe bottlenecks across the entire sector. Based on financial data and operational insights from the field, here are the five primary macroeconomic implications of this credit squeeze:
3.1. Suppression of Manufacturing Capacity Utilization
With commercial borrowing costs remaining actively hostile at an average of 24.4% prime lending rates and 33.8% maximum lending rates, long-term capital investments are unviable. Starving factories of affordable credit blocks technology upgrades and prevents operators from maintaining optimal capacity utilization or expanding local manufacturing plants. It is practically impossible to build a 21st-century industrial economy when forcing factories to fund their capital footprint through 19th-century primitive capital constraints.
3.2. Structural Stagnation of Sectoral Contribution to National GDP
The sharp decline in credit to manufacturing can severely dampen the sector’s output, causing its contribution to real Gross Domestic Product (GDP) to remain structurally hobbled below the 10% mark, hovering tightly at 9.57%. When financing is eclipsed by less labour-intensive or highly speculative sectors, real economic growth becomes deeply uneven and fragile. Any economy that cannot drive its manufacturing contribution to GDP past a single-digit threshold is merely operating a glorified trading outpost, not building a production powerhouse.
3.3. Escalation of Workforce Downsizing and Structural Unemployment
A credit reduction of this scale forces the manufacturing firms into defensive, structural survival mode. Deprived of liquid operational funding to cope with high energy costs and currency fluctuation, domestic factories are pushed to systematically downsize or exit the market entirely.
3.4 Exacerbation of Supply-Side Inflation and Foreign Exchange (FX) Strain
When domestic manufacturing is starved of necessary financial grease, local productivity drops, making it impossible for internal supply chains to satisfy aggregate domestic demand. This supply shortfall directly triggers supply-side inflation and aggressively leaves the nation dependent on expensive imported finished goods, heavily draining external foreign exchange reserves. A nation that fails to deliberately finance its domestic production is condemned to continuously export its wealth and consistently import inflation and poverty.
3.5 Possibly Paralysis of the 2025 Nigeria Industrial Policy (NIP)
A persistent credit squeeze can directly sabotage the successful execution of the 2025 Nigeria Industrial Policy (NIP). The NIP is strategically designed to boost industrial productivity, enhance global competitiveness and drive massive job creation through dedicated financing frameworks, including proposed development funds and cluster financing. However, the success of such a sweeping industrial policy is entirely dependent on a functional financial transmission mechanism. If the banking ecosystem maintains severe risk aversion and prohibitively high lending rates, the promised capital cannot flow from government blueprints to the factory floor.
Without accessible, single-digit credit that supports domestic manufacturers to execute capital expenditures and modernizing operations, the NIP’s ambitious targets for economic diversification and industrial revitalization become practically unfunded and unrealizable mandates. A visionary industrial policy without a functioning credit transmission mechanism will amount to a well-drafted but comatose aspirational policy. It is practically impossible to kickstart a manufacturing revolution without actively financing the factories tasked with building it.
4.0. Our Prayers: The Path Forward
MAN has consistently maintained that the current funding framework is unfit for purpose. According to the Manufacturing State of Affairs 2025 report, without a dedicated, shielded financial mechanism, the sector cannot operate competitively. Therefore, key industry demands to rectify the funding failure include:
• Further reduce the benchmark interest rate by at least 200–300 basis points over the next two quarters to improve credit affordability for manufacturers,
• Reduce the Cash Reserve Ratio (CRR) for commercial banks that allocate at least 40% of their lending portfolio to manufacturers at single-digit interest rates.
• Increase the capital base of the Bank of Industry (BOI) to meet direct credit demands, bypassing the stringent commercial bank PFIs where possible.
• Expand the Bank of Industry (BoI) intervention fund to allow manufacturers to refinance high-interest commercial bank loans at a fixed 7–9% rate for a minimum of 10 years.
• Operationalize a 50% government-backed guarantee for commercial bank loans extended to Small and Medium Industries (SMIs) involved in value-added processing.
• Communicate the implementation status and enforce the release of the ₦1 Trillion Manufacturing Stabilization Fund.
• Transfer the management of the Manufacturing Stabilization Fund to the Bank of Industry (BOI) with a mandate for a 9% interest rate cap and a strict 7-day processing timeline for verified manufacturers.
5.0. Conclusion
• The persistent financial starvation of Nigerian manufacturing stems not from an absolute scarcity of national capital, but from a fundamental breakdown in policy alignment and distribution architecture. Deploying developmental funds through flawed commercial banking channels that prioritize short-term profitability and rigid collateral over long-term industrial viability inherently neutralizes their economic intent.
• In an environment destabilized by a high rate of foreign exchange and volatility (though less severe) and commercial lending rates soaring past 30%, these interventions do not catalyse real-sector growth. They have shown that allocating liquidity through a flawed mechanism does not help industrialization.
• To reverse this structural stagnation and unlock the sector’s potential, Nigeria must radically decouple developmental credit from the risk-averse restrictions of standard commercial banking frameworks.
• Outsourcing the financial survival of the manufacturing sector to undercapitalized development banks while the monetary system locks its primary liquidity vault is a structural mismatch that guarantees our productive frontline remains permanently starved of capital.
• Crucially, we earnestly implore the Central Bank to pivot away from measures that suffocate the manufacturing sector with affordable credit, while attempting to cure structural inflation. This will ensure that we do not inadvertently deepen the domestic supply-side deficits that drive prices upward in the first place.
• Government should demonstrate its commitment to economic diversification by establishing independent, transparently managed transmission channels capable of delivering genuine, single-digit interest rates directly to domestic manufacturers.
•. The government should conduct an urgent manufacturing sector audit to ascertain the impact of the major reforms under this administration on the sector.
• Until policy promises are structurally insulated from hostile commercial loan criteria and translated into accessible capital, Nigeria’s ambition to transform into a competitive manufacturing powerhouse will remain permanently stalled.
Segun Ajayi-Kadir, mni
Director General,
Manufacturers Association of Nigeria (MAN)
