Why Nigeria's Banks Are Spurning Sort-of-Free Money

Nigerian banks, facing challenges on many fronts, are proving reluctant to take advantage of new rules aimed at boosting loans to the country’s agriculture and manufacturing industries. The measures introduced by Nigeria’s central bank in August, in the hope of stimulating growth, allow banks to use funds that are otherwise sitting in their statutory cash reserves to finance certain projects, with the condition that such loans are at a maximum interest rate of 9 percent and a minimum tenor of seven years. For the most part, banks aren’t biting.

Because they see the risk of lending to agricultural and manufacturing companies as greater than the single-digit interest rate the West African nation’s regulator wants them to collect. Currently, bank loans to corporations carry interest rates exceeding 30 percent. For perspective, the central bank offers risk-free government treasury bills to lenders at about 12 percent.