Data Gap Threatens MSME Sector Financing Needs

…Stakeholders urge government to build reliable database as financing constraints deepen

The lack of accurate, comprehensive, and up-to-date data on Micro, Small, and Medium Enterprises (MSMEs) in Nigeria has become a major obstacle to effective policymaking and access to finance, with stakeholders warning that the country may continue to struggle to address the sector’s challenges without a credible database.

The national president of the Association of Small Business Owners of Nigeria (ASBON), Dr Femi Egbesola, raised the concern while calling on the federal government to urgently establish an accurate database that captures the number, location, size, sectors, financing needs, and challenges of MSMEs across the country.

Egbesola described the continued reliance on the oft-quoted estimate of about 40 million MSMEs as misleading, noting that the figure has been cited repeatedly for decades without corresponding improvements in the sector.

He said the persistent data gap was contributing to the difficulties confronting Nigeria’s business and production economy, particularly in designing policies and financing interventions that respond to the actual needs of businesses.

“Without data, you cannot move the needle. You cannot look at policies in the right direction because it is the data that will direct you,” he said.

The ASBON president also questioned the continued use of statistics suggesting that SMEs constitute about 87 per cent of businesses in Nigeria, arguing that such figures must be regularly reviewed if policymakers are to properly understand the changing structure of the economy.

He called for stronger collaboration among government agencies, financial institutions, business associations, and other stakeholders in the MSME ecosystem to develop reliable data and policies that address both the immediate and structural challenges facing small businesses.

The concern over data comes against the backdrop of rising financing pressures on SMEs, with high interest rates increasingly shutting smaller businesses out of the formal credit market.

An SME sector expert warned that the Central Bank of Nigeria’s decision to retain the Monetary Policy Rate (MPR) at 26.5 per cent could further worsen the financing challenges confronting SMEs, particularly businesses without access to cheaper international funding or the bargaining power enjoyed by larger corporations.

According to the expert, although the MPR stands at 26.5 per cent, the effective lending rates businesses face can rise to between 32 and 38 per cent, depending on the bank and the borrower’s risk profile.

He said such borrowing costs were increasingly difficult for SMEs to absorb, particularly as businesses were already devoting a substantial proportion of their earnings to energy and other operating expenses.

“How many businesses can make profits, spend about 40 per cent of their profit on energy and still have enough to pay bank interest rates?” he queried.

The expert argued that a lower MPR would provide greater relief to SMEs, noting that large corporations have a stronger capacity to negotiate favourable lending terms, access international funding, and attract investment opportunities that are largely unavailable to smaller businesses.

He expressed concern that restricted access to affordable finance was stunting the growth of Nigeria’s SME ecosystem, disclosing that only 3.37 per cent of SMEs currently have access to bank loan portfolios.

He explained that while about 15.7 per cent of SMEs had approached banks for funding at one time or another, only 3.37 per cent had actually gained access to bank loan portfolios.

“That is low compared to other countries,” he said, attributing the situation largely to prohibitive interest rates and the difficulties SMEs encounter in accessing bank credit.

The high cost of borrowing, he added, was also creating apathy among business owners, many of whom had become reluctant to approach banks because they considered the facilities difficult to obtain and excessively expensive to repay.

He warned that the consequences extend beyond individual businesses, stressing that sustainable economic growth cannot be achieved without adequate access to finance.

“When the SME ecosystem is stifled, the economy does not grow,” he said, noting that SMEs contribute about 50 per cent to economic activity.

He further linked the weak growth of SMEs to broader socioeconomic challenges, including unemployment and insecurity.

With SMEs reportedly accounting for about 87 per cent of businesses in Nigeria, the expert described the sector as too important for policymakers to neglect.

“If SMEs form 87 per cent of the entire businesses in Nigeria, that is a huge number that no government should joke with,” he said.

He therefore urged the federal government to move beyond policy rhetoric and deliberately create policies and institutions capable of expanding access to affordable finance for small businesses.

The expert cited Egypt as an example of a country that has deliberately prioritized SME financing, saying its policy framework provides that access to funding for SMEs should not be less than 25 per cent.

He contrasted this with Nigeria’s reported 3.37 per cent access to bank loan portfolios, stressing the need for deliberate government intervention.

“If the government actually wants to solve this, it must be very intentional about it,” he said.

He also criticized what he described as years of paying lip service to the SME sector, arguing that Nigeria cannot continue to depend primarily on its existing economic structure without deliberately building businesses capable of generating jobs, exports, human capital and government revenue.

“By building SMEs, we are building jobs. We are building exports. We are building human resources. We are building government revenue. We are building a number of things that are value chains across the line,” he said.

As part of measures to close the financing gap, the expert advocated establishing dedicated banks to serve SMEs.

He noted that commercial banks are profit-driven institutions and therefore should not necessarily be blamed for demanding high returns on loans.

Instead, he argued that the government should establish specialised financial institutions capable of providing affordable and accessible credit to small businesses.

“You must create a bank that is specifically meant for SMEs,” he said, citing countries such as India and China where dedicated institutions exist to support small businesses.

He argued that although the Bank of Industry plays an important role, it does not adequately fill the gap, as its financing primarily focuses on industrial activities and larger businesses.

According to him, entrepreneurs operating in agriculture, fashion, and other non-industrial sectors may struggle to access the financing they need through existing arrangements.

He therefore called for the establishment of a broader SME or MSME bank capable of catering to businesses across sectors.

Beyond establishing specialised financial institutions, he urged the government to study successful SME financing models in other countries and adapt them to Nigeria’s economic realities.

He also stressed the importance of monitoring and evaluating government interventions, arguing that SME support programmes should not be reduced to the distribution of handouts.

“Government must also be able to see what came out of that, and that should be the pointer to what it will do next,” he said.

The expert warned that without reliable data, affordable credit and institutions specifically designed to meet the financing needs of smaller businesses, government interventions risk remaining disconnected from the realities of the MSME sector.

For Nigeria, the stakes are significant. A sector that accounts for the overwhelming majority of businesses cannot be expected to create jobs, expand production, generate exports and drive inclusive growth if its operators remain largely excluded from affordable credit.

The continued dependence on high-cost commercial lending, without a deliberate alternative financing architecture for SMEs, risks turning interest rates from a monetary policy instrument into a barrier to enterprise growth.

Stakeholders therefore insist that lowering the cost of credit, expanding access to finance, establishing dedicated SME financing institutions and developing a reliable national MSME database must become central to any serious strategy for unlocking the sector’s economic potential.

Also speaking, the Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, also stressed the need for Nigeria’s banking sector to significantly increase lending to micro, small and medium-sized enterprises (MSMEs) if the country is to achieve sustainable and inclusive economic growth.

‎According to him, the current situation, in which less than 5 per cent of total bank credit goes to SMEs, remains a major challenge despite the sector’s enormous contribution to the economy.

‎He stated that the poor flow of credit to small businesses has continued to limit productivity, investment, job creation and economic expansion.

‎Yusuf, pointed out that the disconnect is worrying because MSMEs account for about half of Nigeria’s gross domestic product (GDP) and contribute more than 50 per cent of employment. Yet, they receive only a small fraction of available bank financing.

‎He noted that improving access to finance for MSMEs and the informal sector would make the economy more inclusive and accelerate growth.

He said financial technology companies have demonstrated that small businesses can be served effectively through innovative lending models, adding that fintech firms have built stronger relationships with SMEs than many traditional commercial banks.

‎He observed that the rapid growth in digital financial services and the increasing volume of transactions handled by fintech operators show that technology can bridge the financing gap if properly supported by policy.

‎Speaking further on the recent banking sector recapitalisation, Yusuf said the exercise would only achieve its objective if banks use their stronger capital base to finance sectors that have traditionally been neglected due to perceived risks.

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