A new report by the Alliance for Economic Research and Ethics (AERE) has revealed that Nigerian banks are allocating just one per cent of total credit to Small and Medium Enterprises (SMEs).
This is despite the sector contributing 50 per cent of the country’s Gross Domestic Product (GDP) and employing 80 per cent of the workforce.
The report, titled “The ₦14 Trillion Vanishing Act: When Nigeria’s Banks Have Money But Refuse to Lend It,” described the situation as a major failure of the financial system, warning that businesses are being starved of credit even as banks remain highly liquid.
According to the report published on May 30, 2026, SMEs face a financing gap of ₦48 trillion, which is three times the size of the federal budget.
It noted that despite the recent recapitalisation of 32 banks aimed at strengthening their balance sheets, lending to SMEs has not increased.
The report said the wider private sector is also facing a severe credit squeeze, with private sector credit falling by ₦14 trillion between February and April 2026, despite a broad money supply of ₦124.99 trillion.
It attributed the decline largely to banks’ preference for lending to the government rather than businesses.
Credit to the government rose to ₦39.6 trillion in April 2026, representing a 65.6 per cent increase year-on-year, as banks increasingly channel funds into government securities that offer attractive returns with lower risks.
AERE also pointed to what it described as a broken monetary transmission system, citing that even though the Central Bank of Nigeria (CBN) cut the Monetary Policy Rate (MPR) twice, from 27.5 per cent to 26.5 per cent in recent times, commercial banks moved in the opposite direction by raising average maximum lending rates to 35.17 per cent.
READ ALSO:
- Nigerian Stock Market Adds ₦4.52trn in May as Industrial, Insurance Stocks Drive Rally
- Group Faults Presidency’s Energy Sector Reform Scorecard, Says Report Overstates Progress
- Tinubu’s 3 Years: Reform Wins, Economic Pain and an Unfinished Reset
- Nigeria’s Economy to Grow by 3.93% in Q2 Despite Global Risks
- Cardoso Defends Economic Policy Reforms, Downplays Reserve Drops
The report said the high lending rates have deepened the crisis for manufacturers, with borrowing costs of between 35 and 37 per cent making debt servicing unsustainable for many firms.
As a result, lending to the manufacturing sector fell by 20.1 per cent year-on-year, dropping from ₦8.49 trillion to ₦6.79 trillion, it stated.
It added that the worsening credit conditions contributed to a decline in economic activity, with the April 2026 Purchasing Managers’ Index (PMI) falling to 49.4, signalling the first contraction in 16 months across the industry and services sectors.
To address the problem, AERE proposed a series of reforms, including a requirement for banks to allocate at least 30 per cent of total credit to the real economy, particularly manufacturing, agriculture, and SMEs, within the next 24 months.
The report also called for the establishment of a ₦5 trillion National Industrial Settlement Bank (NISB) to provide long-term financing at single-digit interest rates of between five and eight per cent for manufacturers, agro-processors, and SMEs.
AERE warned that without urgent action to redirect credit to productive sectors, the country risks deeper economic contraction, weakening industrial output, and a further widening of the financing gap facing small businesses.
Alex is a business journalist cum data enthusiast with the Pinnacle Daily. He can be reached via ealex@thepinnacleng.com, @ehime_alex on X