Follow Us on Google
From Adanna Nnamani, Abuja
For most Nigerians, benchmark interest rates rarely attract attention. They do not move markets with the drama of exchange rate fluctuations, nor do they dominate public discourse like inflation figures or fuel prices. Yet, these benchmarks quietly underpin the financial system, influencing how banks price loans, how governments raise capital, how investors assess risk, and how central banks transmit monetary policy.
Recently, that often-overlooked aspect of the financial system moved to centre stage as the Central Bank of Nigeria (CBN) launched the Nigerian Overnight Financing Rate (NOFR), a transaction-based benchmark that regulators, bankers and market operators believe could transform the pricing of money in the economy and accelerate the modernisation of Nigeria’s financial markets.
The launch marked another milestone in the apex bank’s ongoing reform agenda, one aimed at strengthening market infrastructure, enhancing transparency and aligning Nigeria’s financial system with evolving global standards.
Describing the initiative as a significant step in the country’s financial system transformation, CBN Governor Olayemi Cardoso said the benchmark forms part of a broader effort to build a more resilient, efficient and credible financial sector.
“Today, we gather to mark another important chapter in the unfolding steps of Nigeria’s financial system transformation,” Cardoso said at the launch ceremony in Abuja.
The governor acknowledged that stakeholders may have noticed an increasing number of reform initiatives from the apex bank in recent months. However, he insisted that deliberate efforts are required to prepare the financial system for future challenges and opportunities.
“Financial systems, much like economies themselves, cannot remain static. They must evolve continuously to reflect changing realities, respond to emerging opportunities, and create stronger foundations for future growth,” he said.
At the heart of that evolution is NOFR, a benchmark designed to reflect the true cost of overnight funding in Nigeria’s money market through actual secured transactions between financial institutions.
Although technical in nature, the benchmark could have far-reaching implications for banks, businesses, investors and the broader economy.
Why benchmark rates matter
Benchmark interest rates are often described as the price of money.
They serve as reference points for pricing loans, bonds, deposits, derivatives and other financial instruments. They also influence liquidity management decisions and play a critical role in the transmission of monetary policy.
Cardoso underscored their importance during his address, stating “Benchmark interest rates, the rate at which everyone agrees represents a true reflection of the price of money at a particular point in time, are the backbone of any modern financial system,” he said.
According to him, benchmark rates provide “critical reference points for pricing financial instruments, guiding liquidity and risk management, and facilitating the effective transmission of monetary policy.”
The challenge, however, lies in ensuring that such benchmarks are credible and trusted.
Global benchmark manipulation scandals over the last decade exposed vulnerabilities in systems that relied heavily on estimates and expert judgement rather than actual market transactions.
As a result, financial regulators around the world embarked on sweeping benchmark reforms.
“Recent global developments have underscored this need, resulting in financial systems transitioning from judgment-based or indicative rates to transaction-based benchmarks that reflect underlying market realities,” the governor explained.
The United States adopted the Secured Overnight Financing Rate (SOFR), the United Kingdom moved to SONIA, while Europe introduced the Euro Short-Term Rate (€STR).
Nigeria’s NOFR now joins that growing family of transaction-based benchmarks.
Building trust through transparency
For the CBN, one of the strongest arguments for NOFR is credibility.
Cardoso stressed that benchmarks can only be effective when they emerge from transparent and well-governed market structures.
According to him, “Before a benchmark can be widely accepted, it must be an output of a trusted, well governed, and transparent financial market framework, with an underlying administrative process and methodology that protects against any form of manipulation.”
The governor explained that NOFR was developed through collaboration between the CBN, the Financial Markets Dealers Association (FMDA) and the European Bank for Reconstruction and Development (EBRD).
According to him, the benchmark has been deliberately designed to reflect actual overnight secured transactions in the Nigerian interbank market.
By anchoring the rate on observable market activity, the benchmark is expected to improve transparency and confidence.
The CBN says NOFR will “enhance market integrity and credibility, reduce reliance on subjective estimates, minimise the risk of manipulation and improve price discovery and transparency.”
Cardoso described the development as “a fundamental shift” that aligns Nigeria with global best practice in benchmark reform.
More than introducing a new rate
Deputy Governor for Economic Policy, Muhammad Abdullahi, believes the significance of NOFR goes far beyond the publication of a daily benchmark.
Speaking during the launch, he described the initiative as another milestone in the evolution of Nigeria’s financial markets.
“It marks an important milestone, not simply because we are introducing a benchmark, but because we are collectively taking another step in the evolution of Nigeria’s Financial Market,” he said.
According to Abdullahi, the journey to NOFR required vision, technical expertise and collaboration among regulators and market participants.
“The journey to this moment demanded a clear vision, technical rigour, collaboration, resilience and perhaps most importantly, a shared conviction that our financial system must continuously evolve to meet the demands of a changing world.”
The Deputy Governor argued that benchmark reform represents much more than a technical adjustment.
“The development and transition to a reliable and credible market reference point represents more than a market reform; it underscores progress, modernization and our commitment to building stronger foundations for the future.”
He noted that financial markets worldwide are rapidly embracing transaction-based reference rates, making it necessary for Nigeria to keep pace with international developments.
“As global markets increasingly move toward more robust, transaction-based reference rates, Nigeria must continue to position itself not merely to follow change, but to shape it.”
For Abdullahi, therefore, the launch is not the final destination.
“Today is not the destination, but rather, it is the beginning of another chapter.”
The role of FMDA and market operators
Behind the launch lies months of technical work involving regulators, market operators and development partners.
A key role was played by the Financial Markets Dealers Association, whose technical committee worked closely with the CBN and EBRD to develop the framework.
Presenting the FMDA report on behalf of Access Bank Managing Director and the association, Treasurer of Access Bank Plc, David Enilolobo, explained that the benchmark emerged from the need to strengthen market transparency and modernise Nigeria’s benchmark architecture.
According to the FMDA presentation, “Nigeria’s benchmark architecture has largely been based on quotes or financial market expert contributions.”
While such frameworks served the market for years, the association argued that growing market sophistication requires a more robust approach.
“The next phase of money market development requires a shift from contributor-based reference rates to a transparent and transaction-based benchmark.”
The association noted that NOFR was specifically designed to be transaction-based and data-driven, minimise expert judgement, strengthen governance standards and support financial stability.
The benchmark, according to the presentation, is intended to provide a credible reference rate for Naira pricing while supporting future market innovation.
It is also expected to serve as a foundation for floating-rate instruments, repo transactions, derivatives and other sophisticated financial products.
Other News
Summarising the rationale behind the reform, the FMDA stated: “Trusted benchmarks improve pricing. Better pricing deepens markets. Deeper markets strengthen the Naira’s global relevance.”
Deepening Nigeria’s financial markets
One of the major expectations surrounding NOFR is its potential to deepen the country’s financial markets.
Financial experts argue that transparent benchmark rates encourage greater market participation, improve risk management and support the development of new financial products.
Cardoso noted that the benchmark would provide financial institutions with a transparent and reliable reference rate that can support treasury operations, liquidity management, pricing of financial contracts and development of derivatives.
He added that NOFR would help strengthen risk management frameworks across the financial sector.
Importantly, the benchmark also lays the foundation for future development of term benchmark rates and more sophisticated financial instruments.
Such instruments are widely regarded as essential for building deeper and more dynamic financial markets.
For banks, investors and financial institutions, the benchmark offers a reliable pricing reference capable of supporting a wider range of market activities. It is expected to improve liquidity management operations, strengthen treasury functions and encourage greater participation in financial markets.
The CBN believes these developments will ultimately contribute to a more efficient and competitive financial system.
Lessons from global markets
Nigeria’s adoption of NOFR did not happen in isolation. Rather, it reflects a global shift that has transformed financial markets over the past decade.
Following benchmark manipulation scandals that exposed weaknesses in traditional rate-setting systems, regulators across major economies began replacing reference rates that relied on estimates and expert judgement with benchmarks derived from actual market transactions.
The transition reshaped some of the world’s biggest financial markets. The United States introduced SOFR, the United Kingdom adopted SONIA, while Europe launched €STR.
The objective was simple: restore confidence in benchmark rates by ensuring they reflected genuine market activity.
The EBRD, which provided technical support for Nigeria’s benchmark reform programme, highlighted similar experiences in other jurisdictions.
According to the institution, transaction-based benchmarks improve market transparency, strengthen confidence and support the development of deeper and more efficient financial markets. They also improve the effectiveness of monetary policy by creating a more reliable link between policy decisions and market interest rates.
The lessons from those markets have informed Nigeria’s own transition to NOFR.
Like its international counterparts, the Nigerian benchmark is designed to be transparent, robust and reflective of actual market transactions.
Supporters believe this alignment with global standards will strengthen the credibility of Nigeria’s financial system while making the market more attractive to international investors.
Benefits for businesses and borrowers
While benchmark reforms often appear technical, they have practical implications for businesses and consumers. The adoption of NOFR is expected to improve transparency in loan pricing across the banking system.
“For business entities and borrowing customers across board, the adoption and continued evolution of NOFR is expected to add a new layer of transparency to the pricing of loans in the banking system.”
The benchmark will also serve as a reference point for pricing wholesale and institutional deposits.
By creating a more transparent framework for pricing money, regulators believe NOFR could improve efficiency within the credit market and strengthen the transmission of monetary policy.
For businesses, particularly large corporates and institutional borrowers, a credible benchmark provides greater clarity in financing decisions and risk management planning.
Winning investor confidence
Investor confidence remains a key objective of financial sector reforms.
Countries seeking to attract both domestic and foreign investment increasingly compete on the strength of their institutions and market infrastructure.
The CBN believes NOFR can help improve Nigeria’s standing in this regard.
“The successful implementation of NOFR will reinforce domestic and international investor confidence, thereby contributing to sustainable economic growth,” Cardoso said.
The FMDA echoed that position, arguing that the benchmark would provide a globally recognisable reference rate capable of improving offshore investors’ confidence in Nigeria’s financial markets.
For a country seeking greater participation in international capital markets, such improvements could prove significant.
Positioning Nigeria for the future
Beyond the immediate benefits for banks, investors and borrowers, NOFR is increasingly being viewed as part of a larger strategy to strengthen Nigeria’s position within the global financial system.
As financial markets become more interconnected and increasingly driven by technology, transparency and data integrity are emerging as key determinants of competitiveness.
Countries seeking to attract investment can no longer rely solely on the size of their economies. Investors are paying greater attention to market infrastructure, regulatory quality and institutional credibility.
This is one reason the CBN sees NOFR as a strategic reform rather than merely a technical adjustment.
The benchmark forms part of a broader agenda aimed at creating stronger foundations upon which future financial innovation can thrive.
Cardoso emphasised this point when he noted that financial markets are becoming increasingly digital, interconnected and technology-driven.
“The institutions we build today will determine our ability to compete tomorrow,” he said.
Market operators believe a credible benchmark can support the development of a wider range of financial products, encourage greater participation in Naira-denominated instruments and strengthen the country’s attractiveness to both domestic and foreign investors.
The challenge ahead
Despite the optimism surrounding the launch, stakeholders acknowledge that the benchmark’s long-term success will depend on adoption.
Global experience shows that benchmark reform succeeds only when market participants actively embrace and integrate new benchmarks into their operations.
Recognising this reality, Cardoso called on banks, investors and other stakeholders to support the transition.
“The success of NOFR will depend not only on its design, but on its broad acceptance and consistent usage across the financial system.”
The governor assured stakeholders that the CBN would provide the guidance, governance oversight and engagement necessary to ensure a smooth transition.
Ultimately, the success of NOFR will be measured not by the publication of a daily rate but by its ability to deepen markets, improve transparency, strengthen investor confidence and support economic growth.
As regulators, market operators and investors embrace the new benchmark, many believe the reform could become one of the defining financial market achievements of this decade.
In that sense, the launch of NOFR is not simply about a benchmark. It is about laying the foundations for a more transparent, resilient and globally competitive financial future for Nigeria.
Or, as the FMDA aptly put it: “Trusted benchmarks improve pricing. Better pricing deepens markets. Deeper markets strengthen the Naira’s global relevance.”
