By someone who has sat on both sides of the table, as an entrepreneur and as a financial adviser, it is difficult to overstate just how vital small businesses are to Nigeria’s economy.
Micro, small and medium-sized enterprises (MSMEs), over 40 million of them, make up almost half of our gross domestic product. More importantly, they employ more than 80 percent of Nigeria’s workforce. These are not simply figures. They represent families fed, bills paid, and children educated. In a country grappling with unemployment and low productivity, MSMEs are the economy’s lifeblood.
And yet, access to finance remains abysmally low. Only 4 percent of these businesses benefit from formal credit. The rest make do with personal savings, informal lending circles, or—far worse—loan sharks charging ruinous interest rates.
This is not merely a business challenge; it is a policy failure. If Nigeria is to build a stable and inclusive economy, the smallest businesses must not be the last to be considered.
What small businesses are up against
The finance system as it stands was not designed with small traders, informal retailers, or rural farmers in mind. Banks expect fixed assets as collateral. They require audited accounts and tax documents. But most small businesses operate from rented stalls, open markets, or home kitchens. Their records are manual or non-existent.
Picture a local food vendor who sells 200 loaves of bread each day. She handles large cash volumes, earns consistently, and supports several dependents. But without property documents or a formal balance sheet, she is excluded from mainstream finance.
This is not a rare story. Nigerian MSMEs face an estimated $236 billion credit gap. In 2023, interest rates for small business loans hovered near 28 percent. For many, borrowing at that rate is not financing; it is a death sentence.
Worse still, traditional credit assessments fail to capture the way these businesses truly function. They are informal, cash-based, and agile, but the system treats them as invisible.
What must be done
If we are serious about lifting MSMEs, then the financial system must reflect their realities, not penalise them for it. Three key shifts are needed:
First, we must embrace alternative ways of assessing creditworthiness. Daily sales records, mobile money transactions, and point-of-sale receipts: these are valid indicators of a business’s health. If a corner shop reliably handles transactions every day, it deserves recognition, even without collateral.
Second, we need more flexible repayment structures. Not every business operates on a monthly cycle. A farmer earns after harvest; a tailor earns more during festive seasons. Loans must align with the rhythms of the businesses they are meant to serve.
Third, digital lenders have proven that it is possible to offer credit at speed and scale, using real-time data to assess risk. Government and traditional banks should be working with fintech companies, not against them, to expand safe, inclusive lending.
The bigger picture
Supporting MSMEs is not just an economic strategy. It is a nation-building imperative. Behind every small business is a person striving to build something against the odds. Finance policy must be about enabling, not excluding.
It is time we stopped labelling MSMEs as inherently risky and started designing systems that see their potential. If we are to build a strong economy, we must begin by building strong small businesses.
And that begins with finance that works for them, not against them.
Mr. Seyi Asagun is a finance expert with over three decades of experience.
