AltBank, a Nigerian digital bank, has called for a paradigm shift in the country's capital debate, arguing that the focus should move from interest rates to capital allocation. The bank's CEO made the remarks during a recent industry conference, emphasizing that how capital is deployed matters more than the cost of borrowing.
Beyond Interest Rates: The Core of the Debate
According to the CEO, Nigeria's financial discourse has been dominated by discussions on interest rates, but the real issue lies in the efficient allocation of capital to productive sectors. "We have been asking the wrong questions," he said. "The debate should not just be about rates but about where the capital goes and how it impacts the economy."
The CEO highlighted that despite various monetary policy adjustments, the expected economic transformation has not materialized. He pointed out that the banking sector's lending to the real sector remains suboptimal, with a significant portion of credit going to trading and consumption rather than manufacturing and infrastructure.
Data Points and Economic Impact
Citing data from the Central Bank of Nigeria, the CEO noted that only about 15% of bank loans are directed to the manufacturing sector, while a larger share goes to import financing and consumer credit. This misallocation, he argued, perpetuates a cycle of dependency and limits job creation.
He called for a collaborative approach among banks, regulators, and the government to incentivize lending to critical sectors such as agriculture, technology, and renewable energy. "We need to create an ecosystem where capital flows to where it can generate the most value," he added.
AltBank's Approach to Capital Allocation
AltBank itself has been pioneering a model that prioritizes impact lending. The bank has developed a credit assessment framework that evaluates borrowers not only on their financial history but also on their potential contribution to economic development. This includes startups and small businesses that are often overlooked by traditional banks.
The CEO emphasized that digital banks like AltBank have an advantage in this regard, as they can leverage data analytics to identify high-potential sectors and tailor products accordingly. "We are using technology to bridge the gap between idle capital and productive opportunities," he said.
Policy Recommendations and the Way Forward
The CEO urged the government to consider policies that reward banks for increasing their loan books to priority sectors. He suggested tax incentives and reduced cash reserve requirements for banks that meet certain lending thresholds.
He also called for a more robust credit guarantee scheme to de-risk lending to small and medium-sized enterprises (SMEs), which are the backbone of the Nigerian economy but often struggle to access finance.
"The conversation must shift from how much it costs to borrow to how well we use the funds we have," he concluded. "Only then can we unlock Nigeria's true economic potential."
