Nigeria’s small and medium enterprises (SMEs), which account for about half of the country’s economic output and more than 80 percent of employment, are facing mounting pressure from limited access to finance, with a funding shortfall estimated at N48 trillion, raising concerns about job creation and economic growth.
A new policy brief by the Centre for the Promotion of Private Enterprise (CPPE) warns that, despite significant progress in strengthening the banking sector through recapitalisation, credit to the real economy, particularly SMEs, remains critically low, exposing a major weakness in Nigeria’s financial system.
The CPPE noted that SME lending accounts for just about 1 percent of total bank credit in Nigeria, far below the sub-Saharan African average of around 5 percent. This gap is especially troubling given the sector’s outsized role in supporting livelihoods, driving entrepreneurship, and sustaining domestic production.
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The warning comes as Nigeria concludes a major bank recapitalisation exercise led by the Central Bank of Nigeria (CBN), which has significantly boosted the capacity of lenders to absorb shocks and support large-scale transactions. As of late March 2026, about 32 banks had met the new minimum capital requirements, with the process described as orderly, non-disruptive, and confidence-enhancing.
However, CPPE argued that stronger bank balance sheets have yet to translate into improved access to credit for businesses that need it most.
“The ultimate success of the recapitalisation exercise will be determined not just by stronger banks, but by the extent to which the banking system supports investment, enterprise, job creation and economic transformation,” said Muda Yusuf, chief executive officer of CPPE.
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Beyond SMEs, broader indicators of financial intermediation also point to a constrained credit environment. Private sector credit in Nigeria stands at about 17 percent of gross domestic product, significantly below the sub-Saharan African average of 25 percent and the roughly 34 percent recorded in lower-middle-income economies. In more advanced African markets such as South Africa and Mauritius, the ratios are far higher, underscoring Nigeria’s lag in channeling financial resources into productive sectors.
The structure of lending further compounds the problem. More than half of total credit in the banking system is short-term, with maturities of less than one year, while long-term financing, critical for sectors such as manufacturing, agriculture, infrastructure, and real estate, accounts for only about a quarter of total lending.
This mismatch has limited the ability of businesses to invest, expand capacity, and create jobs at scale, particularly in sectors central to Nigeria’s diversification agenda.
In addition, credit allocation remains skewed toward the services sector, which absorbs about 55 percent of total lending, compared with just 14 percent for manufacturing and about 5 percent for agriculture. Analysts say this pattern reflects both risk aversion among banks and structural incentives that favour short-term, lower-risk investments over long-term productive financing.
Several factors continue to constrain lending to SMEs, including high interest rates, stringent collateral requirements, and elevated risk perception. The crowding-out effect of government borrowing has also played a role, as banks allocate a significant share of their portfolios to relatively risk-free public sector instruments.
CPPE is calling for a shift in policy focus as the recapitalisation programme draws to a close, urging authorities to prioritise measures that reconnect the banking system to the real economy.
These include scaling up credit guarantee schemes to derisk SME lending, improving credit infrastructure, incentivising long-term financing, and ensuring that monetary policy transmission leads to lower borrowing costs for businesses. The group also called for efforts to raise private sector credit to at least 30 percent of GDP over the medium term.
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Without such reforms, analysts warn that the disconnect between a stronger banking system and a struggling real economy could persist, undermining Nigeria’s growth prospects.