Nigeria’s small and medium-scale enterprises are grappling with a massive N48tn financing shortfall, amid concerns that recent banking reforms have yet to translate into meaningful credit to the productive sector, a new report has revealed.
The Centre for the Promotion of Private Enterprise (CPPE) raised the alarm in a policy brief on Sunday, stating that despite improvements in the banking system, credit flow to SMEs remains alarmingly low.
According to the report led by economist, Dr Muda Yusuf, SME lending accounts for only about one per cent of total bank credit in Nigeria far below the sub-Saharan African average of five per cent.
The CPPE warned that the imbalance is particularly troubling given the central role of SMEs in the economy, noting that they contribute about 50 per cent of Gross Domestic Product and account for over 80 per cent of employment in the country.
“More critically, credit to small and medium enterprises is alarmingly low,” the report stated, adding that the estimated N48tn financing gap continues to constrain growth, innovation, and job creation.
While acknowledging ongoing bank recapitalisation by the Central Bank of Nigeria as a positive step, the CPPE said the exercise has not yet produced significant benefits for the real sector of the economy.
“While recapitalisation has significantly strengthened the capacity of banks to absorb shocks… the critical question now is whether this stronger banking system will sufficiently support the real economy,” the group said, warning that “the evidence suggests that this linkage remains weak.”
The policy brief noted that 32 banks had met the new minimum capital requirements as of March 27, 2026, describing the process as orderly and non-disruptive, with no depositor losses, forced mergers, or erosion of shareholder value.
However, it said broader credit indicators remain weak, with private-sector credit estimated at about 17 per cent of GDP in 2025—well below the sub-Saharan African average of 25 per cent and far behind the 34 per cent recorded in lower-middle-income economies.
The CPPE also expressed concern over the structure of credit in the country, noting that about 55 per cent of loans are short-term, with maturities of less than one year, while only 25 per cent are long-term loans exceeding three years.
It argued that this structure is unsuitable for key sectors such as manufacturing, agriculture, infrastructure, and real estate, which require long-term financing to thrive.
A breakdown of sectoral lending further highlights the imbalance, with the services sector receiving about 55 per cent of total credit, while manufacturing gets 14 per cent and agriculture just five per cent.
The group attributed the weak flow of credit to several structural challenges, including high government borrowing, tight monetary policy, elevated interest rates, risk aversion among lenders, and strict collateral requirements that exclude many small businesses.
It also noted that consumer credit remains underdeveloped at about seven per cent of total lending—significantly below the 15 to 25 per cent range in other parts of sub-Saharan Africa—thereby limiting domestic demand and economic expansion.
To address these gaps, the CPPE called on policymakers to move beyond strengthening banks’ balance sheets to ensuring that credit flows more effectively into the real economy.
The group recommended raising private sector credit to at least 30 per cent of GDP in the medium term, introducing credit guarantees to de-risk SME lending, and improving credit infrastructure to enhance access to financing.
It also urged authorities to strengthen monetary policy transmission, incentivise long-term lending, and reduce the crowding-out effect of public sector borrowing.
According to the CPPE, the ultimate success of banking reforms will not be measured by the strength of financial institutions alone but by their impact on enterprise development and job creation.
“At this critical juncture, the priority must shift from capital adequacy to economic impact. Nigeria needs not just stronger banks, but banks that work for the economy,” the report added.
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