The quest by the Tinubu administration to rejuvenate the Nigerian economy and propel it towards a $1 trillion GDP is contingent upon substantial local and foreign investments.
A critical component of this endeavor lies in the imperative to enhance financial intermediation within the country’s banking industry.
Current Financial Landscape:
A Cause for Concern
- As of 2022, data from the Center for the Promotion of Private Enterprise (CPPE) revealed that Nigeria’s banking system’s credit to the private sector was a mere 20.6% of the nation’s GDP. In contrast, sub-Saharan Africa averaged 28%, while the global average stood at 145%.
- Small businesses, constituting approximately 50% of the GDP, had access to only about 1% of the credit available in the banking system, highlighting a significant disparity in credit distribution.
- Dr. Jumoke Oduwole, Special Advisor to President Bola Tinubu on PEBEC and Investment, emphasized the presence of 39.7 million MSMEs in Nigeria, constituting 96% of businesses and 88% of jobs, with a financing gap exceeding N600 billion.
The Role of Financial Intermediation in Economic Development
- Deepening financial intermediation involves enhancing the efficiency, accessibility, and inclusivity of financial services, leading to improved resource allocation and reduced economic vulnerability.
- Dr. Felix Echekoba, a financial economist at Nnamdi Azikiwe University, stressed that broadening access to capital, especially for SMEs, is vital for economic growth. Improved access to affordable credit and financial services can empower these businesses, fostering economic stability and resilience.
- Dr. David Olaleye, a retired economics lecturer, emphasized that an inclusive financial system can mitigate income inequality, promote equitable growth, and bolster balanced development. Marginalized groups and regions, when granted access to financial services, actively participate in economic activities, fostering overall prosperity.
- Enhanced financial intermediation can create employment opportunities, particularly in the fintech and banking sectors. A thriving financial sector expands the job market for skilled professionals and entrepreneurs, leading to economic diversification and growth.
Addressing Challenges and Enhancing Financial Stability
- Moses Igbrude, President of the Independent Shareholders Association of Nigeria, underscored the need to reduce the cost of finance and enhance confidence in the financial system. Confidence encourages individuals and businesses to save and invest, essential for long-term economic growth.
- Adequate financing plays a pivotal role in infrastructure development. A deeper financial system can provide the capital required for constructing and maintaining vital infrastructure, such as roads, ports, and energy facilities.
- Dr. Muda Yusuf, CEO of CPPE, stressed the importance of deepening synergy between the banking system and economic players, especially MSMEs. He emphasized the need to reduce the ratio of non-interest income, address the high spread between deposit and lending rates, and focus on core banking functions to foster a conducive economic environment.
In conclusion, deepening financial intermediation stands as a cornerstone in achieving President Tinubu’s vision for a robust Nigerian economy.
By addressing existing challenges and fostering inclusivity, the nation can pave the way for sustainable economic growth, job creation, and overall prosperity.
