Many Nigerian small businesses operate without formal accounting records despite stricter tax reforms and growing digital monitoring by authorities.
The weak bookkeeping culture is increasingly hurting SMEs beyond tax compliance, limiting access to loans, investors, and formal financial support at a time when businesses are already battling high borrowing costs and inflation.
For many lenders, the absence of proper records makes it difficult to assess cash flow, profitability, and repayment capacity, leaving thousands of businesses locked out of formal credit.
According to the 2025 World Bank Enterprise Survey, 94.8 percent of SMEs in Nigeria have bank accounts, yet only 20.2 percent have access to bank loans. About 42 percent are partially credit-constrained, while only 1.5 percent of investments are financed through banks, with most businesses relying on retained earnings, personal savings, and informal funding channels.
The survey also shows that 23.1 percent of small firms had loan applications rejected, compared to 0.2 percent of large firms, reflecting the financing gap between small and large enterprises.
“Nigeria’s businesses are financially included, but not financially empowered,” Wasiu Adekunle, economist at the Nigerian Economic Summit Group (NESG), wrote in a LinkedIn post.
He noted that weak financial records, high lending rates, collateral demands, and macroeconomic instability continue to increase perceived lending risk, limiting the translation of bank access into productive financing.
According to the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN), Nigeria has between 39.7 million and 44 million micro, small, and medium enterprises (MSMEs), contributing about 48 percent to GDP and employing more than 84 percent of the workforce.
Yet a significant share of these businesses remains informal, with World Bank and IMF estimates placing the informal economy at up to 65 percent of GDP and employment.
This dual structure continues to weaken the quality of financial data available on the sector, further complicating credit assessment by banks and investors.
Section 31 of the Nigeria Tax Administration Act, which took full effect in 2026, requires every business “whether or not liable to pay tax” to maintain books and records of accounts for at least six years.
The law also requires that such records contain sufficient information to determine tax obligations.
“Many businesses still believe that if they are not paying taxes, they do not need proper books,” Olamide Olaniran, a chartered accountant and senior tax adviser, said. “But record-keeping is a compliance obligation whether tax is payable or not.”
Olaniran added that weak documentation exposes businesses to regulatory and financial risks that go beyond taxation. Without verifiable records, she said, SMEs struggle to defend their positions during audits, access structured credit, or demonstrate financial credibility to investors and lenders.
The issue is becoming more significant as Nigeria expands tax reforms aimed at widening the tax base, improving non-oil revenue collection, and formalising the economy.
Under the 2025 reforms, authorities introduced a 1 percent presumptive tax for informal businesses operating without detailed financial records, while businesses earning N12 million or less annually are exempt.
The structure is designed to bring more informal operators into the tax net while reducing administrative complexity for micro enterprises.
The reforms also harmonised taxpayer identification systems, linking the National Identification Number (NIN), Bank Verification Number (BVN), and Corporate Affairs Commission registration data to strengthen compliance monitoring.
Nigeria’s tax-to-GDP ratio has risen to an estimated 13.5 percent following recent fiscal reforms, up from below 10 percent previously, as government efforts to expand the tax base begin to reflect in revenue performance.
This shift highlights a broader transition toward data-driven tax administration and reduced reliance on oil revenues.
However, many SMEs continue to struggle with the realities of formal bookkeeping. Compliance costs, weak digital literacy, unstable electricity supply, and poor internet connectivity continue to limit the adoption of accounting software and structured financial reporting among smaller businesses.
For many operators, survival in a high-cost environment takes precedence over documentation and compliance systems.
Adekunle said stronger bank balance sheets alone would not solve Nigeria’s SME financing challenges without deeper structural reforms.
“Nigeria does not simply need more capital; it needs a financial system capable of efficiently mobilising savings, pricing risk and channeling credit towards productive investment, especially for SMEs,” he said.
The financing gap remains significant despite rising financial inclusion, with many SMEs effectively operating within the banking system but outside its credit structure.
Without proper records, SMEs risk presumptive tax assessments; they may struggle to contest and continue exclusion from formal credit markets needed for expansion. In Nigeria’s increasingly data-driven economy, bookkeeping is becoming a core requirement for both compliance and survival.