…Experts Say It Casts Shadow Over Country’s Economic Recovery LAGOS – Despite their reputation as the lifeblood of Nigeria’s economy, small and medi-um-sized enterprises (SMEs) remain among the most financially underserved groups in the country. Limited access to affordable credit continues to choke business expansion, undermine productivity, and stifle job creation—casting a long shadow over the country’s broader economic recov-ery efforts. At the heart of this persistent chal-lenge is Nigeria’s low credit penetra-tion rate. Although SMEs account for over 90% of businesses and contribute nearly 50% of the country’s GDP, they struggle to access the financial lifelines needed to scale and compete. Recent data from the Central Bank of Nigeria (CBN) shows that private sector credit as a percentage of GDP still trails significantly behind regional and global benchmarks. - “Nigeria’s private sector cred-it is hovering around 20–22% of GDP, compared to over 100% in South Africa and about 45–50% in Kenya,” noted a Lagos-based fi-nancial analyst. “This gap is a crit-ical barrier to growth, especially when you consider the sheer size and potential of our SME base.” For many Nigerian entrepre-neurs, applying for a loan often leads to a dead end. Banks, wary of default risks, routinely de-mand extensive documentation, collateral, and credit histories that most SMEs cannot provide. As a result, even credit-worthy businesses are turned away or priced out with high interest rates. “Accessing a loan is almost im-possible unless you have connec-tions or property to pledge,” said Toke Olaniyi, a small fashion en-trepreneur based in Ogba, Lagos. She added, “Even when the bank is willing, the interest rates are killing—often above 25 percent per annum. That’s not sustainable for small businesses.” This exclusion fuels a vicious cycle. Without access to finance, SMEs cannot invest in equip-ment, hire more workers, or im-prove their products. Many are forced to rely on informal sources of capital, such as family, friends, or unregulated lenders—often at exorbitant rates. The lack of credit also contrib-utes to Nigeria’s stubbornly high unemployment rate. With limited growth and expansion, SMEs are unable to absorb the country’s rapidly growing youth population into productive employment. Ac-cording to the National Bureau of Statistics (NBS), youth unemploy-ment remains alarmingly high, hovering above 35%. Inflation Adds More Pressure Inflation—currently in the high double digits—has made a bad situation worse. Rising pric-es have eroded business margins and diminished consumer pur-chasing power. More important-ly, inflation has triggered tighter monetary policy by the CBN, which has pushed interest rates to record highs in an attempt to tame price pressures. The result? Borrowing costs have soared, further locking out SMEs from the formal credit system. “Until we address inflation in a decisive manner and improve access to affordable credit, espe-cially for SMEs, economic growth will remain sub-optimal,” a se-nior banker in Lagos told Daily Independent. “These issues are not new, but they are becoming more urgent.” However, in recent years, the Nigerian government and the CBN have launched a variety of intervention programmes aimed at supporting SMEs—ranging from the NIRSAL Microfinance Bank loans to the Development Bank of Nigeria’s wholesale fi-nancing initiative. But critics say these pro-grammes, while well-intentioned, have only scratched the surface. “The intervention schemes often don’t reach the people who need them most,” said Ngozi Ezi-morah, a policy researcher at a Lagos-based think tank. “They tend to be riddled with bureaucra-cy, and in many cases, politically connected individuals crowd out genuine small business owners.” Even when disbursed, these funds are not always sufficient to address systemic constraints. Many businesses need more than micro-loans—they need stable financing structures, long-term credit, and supportive policies that lower barriers to entry into the financial system. Significantly, there has been some progress on the fintech front. A wave of digital lenders has emerged in recent years, of-fering faster, more flexible loans to SMEs via mobile platforms. These players have helped bridge some of the credit gap, especially for microenterprises. However, digital lending is not without its own pitfalls. Interest rates are often high, repayment windows short, and borrower protections limited. Regulatory oversight is still evolving, and stories of predatory practices abound. “Fintech has brought inno-vation, but it hasn’t replaced the need for a strong, inclusive credit ecosystem,” said a former CBN official. “We still need a banking sector that is willing—and en-abled—to lend to the productive base of the economy.” What Needs To Change? Experts agree that solving the credit conundrum will require a multi-pronged approach. First and foremost is improving credit risk assessment systems. Nigeria still lacks a comprehensive, reli-able credit scoring infrastructure that can help lenders evaluate SME borrowers more objectively and reduce their perceived risk. Efforts to expand credit regis-tries and promote data sharing among banks, fintechs, and util-ities must be fast-tracked. Addi-tionally, asset registry systems like the National Collateral Reg-istry should be better integrated to allow movable assets—such as vehicles or equipment—to be used as acceptable collateral. Secondly, regulatory reforms must encourage banks to lend more to SMEs. Some economists suggest targeted incentives such as interest rate caps, credit guar-antees, or tax benefits for banks that meet SME lending quotas. Finally, broader macroeco-nomic stability—particularly inflation control—is critical. Without price stability, both lend-ers and borrowers operate in an unpredictable environment that discourages long-term financial planning. “There’s no magic bullet, but a coordinated strategy is essential,” said an economic adviser in Abu-ja. “You need inflation under con-trol, functioning credit infrastruc-ture, de-risking mechanisms, and strong political will. Only then can the full potential of Nigeria’s SME sector be unleashed.” The Human Cost Beyond the economic statis-tics, there is a deeper, more per-sonal cost to the credit drought. Thousands of entrepreneurs across Nigeria face daily frustra-tion, watching their ambitions shrink in the absence of finan-cial support. Ideas remain unde-veloped, markets unpenetrated, and innovations untested. Bimbo Lawal, who runs a small agro-processing outfit in Ibadan, put it plainly: “I started with big dreams. But every time I approach a bank, it’s like hitting a brick wall. No collateral, no loan. And without a loan, there’s no growth.” A Race Against Time With a population projected to surpass 230 million by 2030 and a labour market growing faster than job creation, Nigeria can-not afford to let its most dynamic sector languish. SMEs represent more than just economic units— they are engines of innovation, employment, and social mobility. Unlocking credit for this sector is no longer just a policy option; it is an economic impera-tive. Failure to act decisively risks condemning Nigeria to another decade of missed opportunities, uneven growth, and widening inequality. In the words of the senior La-gos banker: “If you want to know why growth feels slow, look at where the money isn’t going. It’s not going to the people who can actually build something.”