IMPACT OF MONETARY POLICY ON DEVELOPMENT FINANCE INSTITUTIONS IN NIGERIA
By Victoria Olutofunmi Ogundairo, Kehinde Gabriel Ajose, Samuel Olawale Ogundairo & Bamidele Daniel Adeyemi
Volume 11 • Issue No 1 • September 2026
Abstract
Development Finance Institutions (DFIs) in Nigeria play a key role in funding priority sectors of the economy such as agriculture, infrastructure, and small business, but their performance is hampered by monetary policy, which influences credit flows, the cost of funds, and the level of liquidity. This study examines the impact of monetary policy on the performance of DFIs in Nigeria from 2008 to 2023. Annual time series data from the Central Bank of Nigeria were taken into account using the Autoregressive Distributed Lag (ARDL) method to model short-run and long-run dynamics. Results show that monetary policy rate, cash reserve ratio, and inflation have positive but statistically insignificant effects on DFIs in the short run, while open market operations significantly negatively affect their performance. The error correction term confirms adjustment towards stability at a rate of 33% per period, while the bounds test reveals no long-run equilibrium between monetary policy variables and DFIs. The study concludes that DFIs are vulnerable to short-term financial fluctuation, requiring balanced policies, greater collaboration, and institutional strength to fulfil their developmental role.
Keywords
Development Finance Institutions, Open Market Operations, Monetary Policy Rate, Cash Reserve Ratio