Led by a liquidity-stripped Federal Government, institutional fund-raisers are quietly pulling the rug out from under Nigerian small businesses, consolidating on the ‘rich’ history of a structurally defective domestic investment market while underscoring an evolving crisis that could cripple the real sector, worsen the unemployment crisis, and stifle inclusive growth.

In six months, the Debt Management Office (DMO) and Dangote Petroleum Refinery and Petrochemicals alone raised about N11 trillion from the largely domestic market in the evolving institutional wholesale liquidity capture. The amount is notwithstanding the trillions that have gone into the stock market through bank recapitalisation and other investment windows, which continue to melt the capital available for the real sector.

On the contrary, the productive sector continues to lose traction in equity and debt funding. Last year, the manufacturing sector lost over 20 per cent in capital allocation.

Whereas the repercussions of imbalanced capital allocation threaten to undermine the country’s long-term economic growth, market insights and data suggest the skewed flow is partly responsible for the underperformance of small businesses, especially those that operate in the manufacturing and agriculture sectors.

In the first six months of the year alone, the Federal Government, through the DMO, offered for subscription a total of N4.25 trillion, an amount that was oversubscribed by 108 per cent or N4.6 trillion.

An independent report by Cordros put the total value raised by the DMO in six months at N7.6 trillion, in a ratio of 42:58 between treasury bills and bonds. At a bid-to-offer ratio of 1.16 in an election year, investors demonstrated that public instruments have come to stay as a reliable source of public sector financing.

In 2024 and 2025, the DMO raised an estimated N5.84 trillion and N5.26 trillion from FGN bonds to support the budget. Every month, the instruments were oversubscribed, with total subscriptions estimated at N8.96 trillion last year, about 26.4 per cent higher than the N7.09 trillion total subscriptions received in 2024.

As the DMO ramped up its public debt issuance for the first half (H1) this year, Dangote Petroleum Refinery and Petrochemicals, in the first trimester of the terminal month of H1, snapped a whopping $2.5 billion (about N3,5 trillion) from an impressively oversubscribed private placement.

At a 300 per cent oversubscription, the placement, which reflects the public enthusiasm that awaits the company’s public listing of the project, is a telling reflection of enormous liquidity in the economy.

From sovereign instruments to bank lending to the stock market, big instruments are sapping fast-expanding money balances, which the Central Bank of Nigeria (CBN) pegged at N129.21 trillion at the close of May. From N119.2 trillion as at May 2025, the national money supply has seen a year-on-year (y/y) nominal growth of N10 trillion or 8.4 per cent.

Within the period, credit to the private sector grew from N77.97 trillion to N81.04 trillion, an expansion of four per cent, a far cry from the growth of credit to government. According to money and credit statistics obtained from the CBN, government credit spiked by N17.38 trillion in the same period, from N22.99 trillion to N40.38 trillion (an equivalent of 76 per cent).

In absolute terms, the net credit advanced to the public sector in the 12 months was close to six times the size of what the private sector received. The imbalance in credit allocation has narrowed considerably the previously wide gap between the two receipts of the national credit. About 10 years ago, the ratio was 4.7 to 1 in favour of the private sector.

For instance, of the total net domestic credit balance of N23.07 trillion in May 2016, the private sector controlled N19.04 trillion while the government was allocated N4.03 trillion. Today, that ratio has narrowed to about 2:1, reflecting the increasing reliance on local debt mobilisation of federal and state governments in the intervening years.

At the Nigerian Exchange (NGX), where ultra-high liquidity has pushed the market value up by about 50 per cent in H1, aggressive digitalisation has expanded retail participation to about 40 per cent, according to a report, creating opportunity for shared ownership in blue-chip companies that are already disproportionately favoured by formal credit.

With an average Nigerian, including students, now pouring their savings into blue chips through Bamboo and other digital platforms, the rise of retail investment in the NGX means another decay effect on struggling small businesses, which will be further starved of funding by promoters and associates who are increasingly prioritising opportunities in established companies.

Last week, the CBN’s standing deposit facility (SDF) attracted N4.15 trillion, a 60 per cent increase from N2.6 trillion recorded in the previous week. On the flip side, the banks borrowed a total of N36.1 billion through the standing lending facility (SLF), suggesting the financial system is sitting on excess liquidity.

The sharp rise in liquidity conditions has seen the Overnight Nigerian Interbank Offered Rate (NIBOR) decline by 10 basis points to 22.19 per cent, significantly lower than the monthly average.

Liquidity continues to revolve around risk-free windows while manufacturers reel in underfunding. Last year, commercial banks’ credits to manufacturing fell by 22.5 per cent – from N8.53 trillion at the end of 2024 to N6.61 trillion as at December 2025. With the sector underperforming oil and gas, the financial sector among others, the Director-General of the Manufacturers Association of Nigeria (MAN), Segun Ajayi-Kadir, described the decline as disturbing, warning that the steep contraction would feed into general economic performance, employment and national development.  Oil and gas sector had attracted N10.59 trillion in credit, while the finance sector received N9.24 trillion.

Besides access, the real sector is also battling with rippling interest rates, ranging from 35 per cent to 40 per cent and as much as a yearly compound interest rate of 50 to 80 per cent in the case of micro lenders. At an average of four per cent monthly interest, yearly compound interest on an average microfinance bank’s finance is 60 per cent.

Some borrowers, who often turn to microfinance institutions as a lender of last resort, said they pay even higher when sundry charges are included in their finance costs. This has created an arbitrage that is distorting the credit market and opening a wide gap for manipulation.

Analysis of the CBN’s money market indicators puts the three-month average prime lending rate at 19.09 per cent, a 15.14 per cent discount compared to 35.04 per cent paid by riskier borrowers.

In the case of prime borrowers, an average small business, excluded by deposit money banks (DMB), is paying a premium of 40.56 per cent.

While backwards-looking data paints a damn picture about the future of the private sector, near-term futures may not offer any consolation. First, the government, the biggest fundraiser, does not come near black-zero budgeting in its medium-term fiscal plan. Its deficit-budgeting has become a normal source of private capital crowd-out, with banks pouring trillions of naira in yearly sovereign security participation as they struggle to survive an extremely risky economy.

Last year, banks had massive 49 trillion exposures to government securities, anchoring record earnings and strengthening balance sheets.

In the same year, the CBN sold a total of N15.3 trillion in treasury bills as part of its open market operations (OMO), with banks and institutional investors seeing the auctions as their asset protection window in the increasingly risky environment.

Whereas the banks mobilised a total of N4.65 trillion from 2024 to 2026, mainly from the local market to meet their new capital threshold, activities that further impoverished other critical sectors, they scaled down lending to key sectors by N5.45 trillion or 14.8 per cent last year to expand the funding gap.

For Olufemi Saibu, a professor of economics at the University of Lagos and analyst at Stratedge Economics, the opportunity cost of an extremely attractive and accessible risk-free government paper is diminishing and cannot be corrected through interest rate adjustment alone. Where reliefs exist, he said, they merely created firms that are not competing but only operating “at a survival level”.

“Insecurity and macroeconomic uncertainty compound the problem. Persistent insecurity, combined with policy and political unpredictability, pushes investors further toward risk aversion — reinforcing the pull toward risk-free government instruments rather than productive investment,” he noted.

The challenge, according to him, results in stalled job creation and loss of traction of monetary policy.

“The CBN can tighten rates to fight inflation, but if fiscal borrowing keeps absorbing liquidity regardless, monetary tightening does less to cool the real economy and more to reward risk-free lenders. It is a symptom of a deeper fiscal problem, not simply a matter of bank risk appetite. The private credit numbers are downstream of a large deficit being financed domestically because external and revenue options are constrained,” he said.

To address the constraint, Saibu called for structured, targeted support for SMEs that addresses their core cost drivers (not generic relief), deliberate protection and promotion of local firms and a shift away from growing the number of registered SMEs to strengthening existing ones.

Another economist and Chairman of the Board for the ACUF Initiative for Policy and Governance, Chiwuike Uba, said the institutional control of available capital represents a sad structural imbalance that threatens sustainable growth.

“The situation is still manageable, but it requires deliberate policy choices. There must be a conscious effort to rebalance the system. This means moderating domestic borrowing, strengthening revenue mobilisation so that debt dependence reduces and creating clear incentives for banks and investors to support the productive sectors of the economy. It also requires deepening the capital market so that it serves businesses, not just government financing needs,” Uba said.

How quickly the country can reverse the trend depends on how quickly policy can respond to redirect capital back into productive use, before the long-term costs to growth, jobs and economic stability become deeply entrenched.