Nigeria’s N130 Trillion Credit Gap Strangles 39m Businesses

LAGOS — Nigeria’s micro, small, and medium enterprises are being strangled by a massive credit deficit. The Chairman of the Alliance for Economic Research and Ethics, Dele Oye, has warned that the country’s credit gap of over N130 trillion is suffocating approximately 39 million small businesses.

Oye made the disclosure in Lagos on Wednesday. He said the vast majority of Nigeria’s small business owners cannot access affordable credit from banks or financial institutions. Without funding, they cannot grow, hire more workers, or invest in better equipment.

“Nigeria’s MSMEs are the backbone of our economy. They employ over 80 percent of our workforce. However, they are being starved of the credit they need to survive and thrive,” Oye said at the event.

The N130 trillion credit gap represents the difference between what Nigerian businesses need in financing and what the formal financial system currently provides. Most banks prefer to lend to large corporations and the government rather than to small and medium businesses.

Why Banks Avoid MSMEs

Bankers say lending to small businesses is risky. Many MSMEs lack proper financial records, collateral, or business plans that meet lending standards. Default rates on MSME loans are historically higher than on corporate or mortgage loans. As a result, banks price small business loans at very high interest rates.

However, analysts say this reasoning creates a vicious cycle. MSMEs cannot grow without credit. Without growth, they cannot build the track records banks need to lend to them. The cycle repeats, keeping millions of businesses trapped at subsistence level.

Furthermore, Nigeria’s high interest rate environment makes the problem worse. The CBN’s benchmark interest rate stands at 27.5 percent. Commercial bank lending rates are even higher. Most small business owners cannot afford loans at those rates and still make a profit.

Government Plans

The Federal Government has acknowledged the MSME credit problem. Several programs including the CBN’s MSME Development Fund and the Bank of Industry small business windows exist to provide cheaper credit. However, experts say these programs reach only a small fraction of the businesses that need help.

In addition, the SEC’s decision to move Nigeria to T+1 stock settlement from June 1 is expected to improve capital market efficiency. Faster settlement frees up liquidity that can, over time, make its way into credit markets. However, the impact on MSMEs will be indirect and slow.

Oye called on the government to create a dedicated N10 trillion MSME credit guarantee fund. He said such a fund would encourage banks to lend to small businesses by reducing their risk exposure. Several other countries in Africa have used similar mechanisms to successfully expand MSME credit access.