D’banj whose real name is Oladapo Daniel Oyebanjo, has been arrested over allegations of fraud after millions of dollars meant to help unemployed youths start businesses was reported missing.
The N-Power initiative was launched in 2016 by President Muhammadu Buhari and the artist claimed to be the brand ambassador for the scheme.
But many beneficiaries have complained for months that they were not receiving their grants.
Nigeria’s anti-corruption agencies said in a statement on Wednesday that “billions of naira” had been diverted.
D’banj’s lawyers have denied a claim by the anti-corruption agency that their client had ignored multiple summons. They said the artist willingly turned himself in on Tuesday and that he will cooperate with the investigation.
More than two million Nigerians aged between 18 and 35 have benefited from the N-Power scheme since it was launched, according to the government.
At least 280bn naira ($629m; £516m) was distributed in 2019 to beneficiaries who started small businesses, the authorities said.
“The investigation will be all-encompassing and also be extended to other collaborators of the fraud and the banks where the beneficiaries’ accounts are domiciled,” a statement read.