The Bank of Industry (BoI) said a well designed Credit Guarantee Instruments (CGI) will unlock the full potential of Nigeria’s enterprises, laying foundation for a resilient and inclusive economy.
Its managing director, BoI, Dr Olasupo Olusi, said this in a statement in Lagos.
Olusi, however, noted that a coordinated Public-Private Partnership (PPP) was essential to implementing an effective Credit Guarantee Instrument (CGI) in the country.
CGIs are mechanisms designed to reduce the risks financial institutions face when lending to businesses.
A third party, such as a government agency or a specialised institution, guarantees a portion of the loan, ensuring that lenders recover part of their losses if borrowers’ default.
By reducing the perceived risk, CGIs incentivise lenders to extend credit to underserved sectors, including Micro, Small and Medium Enterprises (MSMEs).
The managing director added that in the country’s bustling markets and commercial districts, millions of business owners shared a common struggle of accessing tailored financing needed to scale-up their operations.
He observed that various reports from both local and international development agencies indicated that about five to 10 per cent of Nigerians had access to adequate financing.
“In Nigeria, a limited capacity to package projects, lack of collateral, inadequate credit history and general risk aversion by financial institutions are key factors constraining credit access.
“Given the private sector’s critical role in job creation and economic development, addressing this financing gap is essential.
“As Nigeria aims to achieve its goal of becoming a trillion-dollar economy under President Bola Tinubu’s Renewed Hope agenda, closing the financing gap is critical as MSMEs are the engine of growth.
“Credit Guarantee Instruments (CGIs) emerge as a transformative tool to unlock credit flow, deepen financial inclusion, and drive sustainable economic growth,” he said.
Olusi listed global CGI models to include South Korea’s Credit Guarantee Fund (KODIT), Chile’s Fondo de Garantía para Pequeños Empresarios (FOGAPE), and Turkey’s Credit Guarantee Fund (KGF).
He, however, noted that not all CGI programmes were successful while some showed promise, they fell short of achieving their full potential due to design flaws and implementation challenges.
Olusi stated that to avoid repeating these mistakes, Nigeria must adopt a tailored approach that incorporates global best practices while addressing local needs.
He said a formalised credit guarantee scheme would create a more inclusive financial ecosystem, ensuring that businesses of all sizes could access the funding needed to grow.
“These experiences highlight the need for a solid framework to guide the operationalisation of CGI.
“A well designed credit guarantee scheme could significantly transform Nigeria’s financial landscape by reducing lender risk and unlocking access to affordable financing for enterprises.
“For instance, tech startups and agricultural enterprises could leverage financing to adopt advanced tools, expanding their market reach and operational efficiency.
“As Nigeria seeks to diversify its economy away from fossil fuel dependence, CGIs can channel resources into non-oil sectors such as agriculture, manufacturing, technology and services.
“These sectors have immense potential to drive economic diversification, create employment opportunities, and reduce poverty which could be transformative for the Nigerian economy,” he said.
Olusi noted that while Dvelopment Finance Institutions (DFIs), such as BoI, had made strides in supporting businesses, their reach remained limited by the need to optimise risk management.
He said CGI could complement these efforts by mobilising private sector participation in commercial lending, leading to expanded credit pool and long-term investments in economic growth.
“As part of its recognition of the critical nature of CGIs in fulfilling its mandate, the Bank of Industry in December 2024 signed a 50 million dollars Loan Portfolio Guarantee Agreement with the African Guarantee Fund (AGF).
“This would provide funding for MSMEs and women owned businesses in line with BOI’s six thematic areas.
“Steps such as tailored design, effective risk management, stakeholders collaboration, transparency and accountability, awareness and capacity building should guide CGI design and implementation.
“Stakeholders, including the government, banks, DFIs and development partners must collaborate to bring this vision to life,” he said.
