Small businesses in Nigeria face worsening access to credit as high interest rates and tight monetary policy persist. Many SMEs avoid loans amid stricter conditions, widening a funding gap and forcing reliance on costly informal finance, SAMI TUNJI writes Small and medium-scale enterprises across Nigeria are grappling with limited access to affordable financing as rising interest rates, tight monetary conditions, and structural bottlenecks continue to constrain growth, forcing many operators to rely on costly informal credit channels.
According to the 2025 Informal Economy Report by Moniepoint, more informal businesses in Nigeria are turning away from credit due to rising interest rates and stricter lending conditions. The report showed that 51 per cent of respondents have never taken a loan and do not intend to do so, up from 30 per cent in the previous year.
“While 30 per cent of respondents reported not borrowing for their business in our previous report, that figure increased to 51 per cent in this report. This shows a decline in credit appetite across the informal and small business landscape. A major reason for this could be tighter lending conditions and a higher interest environment,” the report read.
In a recent report by Stears titled ‘MSME Lending in Nigeria, Ghana, and Kenya’, Nigeria’s MSMEs face a $236bn funding gap, with only about four per cent of the country’s 40 million MSMEs having access to formal bank loans. The MSME sector is vital, contributing over 50 per cent of the GDP and employing 70 per cent of Nigeria’s workforce.
However, the lack of access to affordable credit is one of the key challenges stifling its growth. Speaking with The PUNCH, a renowned economist and Chief Executive Officer of the Centre for the Promotion of Private Enterprise, Muda Yusuf, said the financing gap reflects deeper systemic issues in Nigeria’s credit architecture, particularly for small businesses.
“We need a special financing window for small businesses which will give them lower interest rates and longer-term funds,” Yusuf said in a telephone interview, stressing that the current structure of lending does not support enterprise growth. Credit stifles SMEs Under the leadership of Olayemi Cardoso, the CBN has raised the MPR six times, held it four times and cut it twice, moving it from 18.75 per cent before the February 2024 MPC meeting to 26.5 per cent in February 2026.
The tightening cycle began with a 400-basis-point hike to 22.75 per cent in February 2024 and continued through March, May, July, September and November 2024, before the MPC held the rate at 27.5 per cent in February, May and July 2025. The first cut came in September 2025, when the rate was reduced to 27 per cent, followed by a hold in November 2025 and another 50-basis-point cut to 26.5 per cent in February 2026.
Nigeria’s high-interest rate environment has significantly reshaped access to credit, especially for small businesses that lack collateral and formal financial records. With the CBN maintaining a tight monetary stance in recent periods, borrowing costs have surged across the banking system, pushing lending rates for SMEs into levels many consider unsustainable.
Available data from the CBN show that prime lending rates have remained elevated, while maximum lending rates often exceed 30 per cent per annum, depending on the borrower’s risk profile. For small businesses, particularly those outside major urban centres, the reality is even harsher.
PwC’s MSME Survey 2024 showed that 27 per cent of respondents cited high interest rates as the major barrier to loans, 26 per cent blamed long procedures and 14 per cent cited insufficient collateral. Yusuf explained that commercial banks’ risk-averse posture has further narrowed access.