Nigeria’s credit system is failing millions of small businesses and choking economic growth, the Alliance for Economic Research and Ethics has warned.
The group pointed this out in a policy document titled ‘A Policy Analysis on SME Credit, Development Finance, and the Imperative of Structural Reform’, which it issued on Sunday, May 17.
It blamed the failing system on weak capital allocation, high government borrowing, and a dysfunctional lending structure for restricting access to finance.
The group said Nigeria’s financial architecture is increasingly starving the productive sector of credit, leaving businesses struggling to access affordable funding.
It noted that Nigeria’s domestic credit to the private sector stands at about 17.6 per cent of GDP, far below peer economies such as South Africa and Kenya, warning that the figure places Africa’s largest economy among the world’s most financially underdeveloped nations.
According to the group, aggressive domestic borrowing by federal and state governments is worsening the situation by crowding out private sector borrowers.
“When sovereign instruments Treasury Bills and FGN Bonds clear at yields of 16–22%, they do not merely compete with SME lending; they obliterate it,” it stated.
It argued that banks have little incentive to lend to small businesses when safer government securities offer comparable returns.
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The group said the problem extends beyond commercial banks to Nigeria’s development finance institutions, which it described as undercapitalised and operating below their mandates.
It criticised the Bank of Industry (BOI) for moving away from affordable development financing, despite government commitments to expand access to low-cost credit.
According to the group, although President Bola Tinubu’s Renewed Hope Agenda identified single-digit lending as a priority for MSME growth, BOI’s lending structure now places some enterprise loans between 12 and 20 per cent.
“A development bank that prices capital at 15% in an economy where the average commercial bank lending rate stands at 19.29% is not providing development finance; it is providing marginally cheaper commercial finance,” it said.
It urged BOI to return to a strict single-digit lending regime across productive sectors, leveraging sovereign support and concessional funding to make cheaper loans sustainable.
The group also raised concerns about the financial health of the Bank of Agriculture (BOA), describing the institution as technically insolvent.
It said the bank, created to finance Nigeria’s agricultural sector, was operating with a negative equity position exceeding N70 billion as of 2022, despite agriculture’s large contribution to the economy.
While welcoming the federal government’s planned N250 billion credit support for farmers, the group warned that injecting fresh funds into a financially distressed institution without deeper reforms would not solve the problem.
“Injecting liquidity into an institution with negative equity… is not a solution,” it said, calling for urgent recapitalisation, governance reforms and stronger risk management.
The group further highlighted the limited financial capacity of the Nigerian Export-Import Bank (NEXIM), arguing that its capital base is too small to support Nigeria’s export ambitions.
“NEXIM’s current capital base… is grotesquely inadequate for an economy with Nigeria’s export ambitions,” the group stated, urging rapid recapitalisation to strengthen non-oil export financing.
Beyond development finance institutions, the group said commercial banks have consistently failed to serve the MSME segment, with lending rates for many non-prime borrowers frequently exceeding 30 per cent annually.
It noted that manufacturers reduced their bank borrowings by N1.44 trillion in 2025, describing the trend as evidence of the productive sector’s withdrawal from the formal credit market due to high borrowing costs.
The group also blamed weak credit infrastructure, poor risk assessment systems, and slow loan recovery processes for worsening the lending environment.
As part of its recommendations, it urged the federal government to reduce domestic borrowing, tackle inflation drivers, and speed up commercial dispute resolution, while calling on the Central Bank of Nigeria (CBN) to reform banking incentives and support the recapitalisation of development finance institutions.
It also challenged businesses to embrace formalisation by maintaining audited records, registering assets and building verifiable financial histories to improve access to credit.
“The solution must be domestic, structural, and permanent,” the group said, warning that Nigeria’s estimated 39 million MSMEs cannot wait indefinitely for meaningful reforms.
“Nigeria’s 39 million MSMEs are not waiting for another speech. They are waiting for a loan,” the group added.
Alex is a business journalist cum data enthusiast with the Pinnacle Daily. He can be reached via ealex@thepinnacleng.com, @ehime_alex on X