Nigeria’s small and medium-sized enterprises (SMEs), long regarded as the backbone of the nation’s economy, are facing a major growth challenge as limited access to structured financing continues to constrain expansion, productivity and job creation.
According to data from the Small and Medium Enterprises Development Agency of Nigeria, (SMEDAN), SMEs account for about 96 per cent of businesses in Nigeria, contribute nearly 50 per cent of the country’s Gross Domestic Product (GDP), and employ over 80 per cent of the workforce.
Against this backdrop, stakeholders in the financial sector have stressed that bridging the funding gap has become critical to unlocking the full economic potential of the SME segment, warning that without deliberate interventions, the sector’s capacity to drive innovation, industrialisation and employment generation could remain significantly stifled.
Director of Merchant Lending at FairMoney Microfinance Bank, Seun Oyediran, remarked that efforts to deepen economic diversification and foster private-sector-led growth will remain largely ineffective as long as the country fails to address the persistent financing gap afflicting SMEs.
The Nigerian economic landscape is defined by the resilience of its micro, small, and medium-sized enterprises. From the high-traffic supermarkets of Lagos to the critical distribution hubs supporting the hinterlands, millions of entrepreneurs drive our domestic commerce,” he said.
He added that despite their significance, financing remains one of the biggest barriers to growth.
“While demand remains robust across various sectors, limited access to financing remains one of the several constraints affecting SME growth, effectively putting a limit on how much the country’s economy can grow,” Oyediran stated.
According to data from SMEDAN A shows that SMEs account for about 96 per cent of businesses in Nigeria, contribute nearly 50 per cent of the country’s Gross Domestic Product (GDP), and employ over 80 per cent of the workforce.
Oyediran, however, noted that the persistent credit gap identified by the International Finance Corporation continues to prevent many viable businesses from fulfilling orders, optimising inventory and expanding operations.
He said merchant credit is emerging as a practical financing option for SMEs, particularly for businesses needing working capital and inventory support, stressing that the model is better aligned with the realities of trade than traditional commercial lending.
“Unlike the rigid structures of traditional commercial lending, merchant credit is purpose-built for the velocity of trade. By injecting capital directly at the point of need, specifically for inventory replenishment, business expansion and equipment acquisition, it may help address short-term liquidity requirements for eligible businesses,” he explained.
The expert further noted that digital financial services are transforming how lenders assess SME creditworthiness, shifting from the old collateral-based system to performance-based lending models.
According to him, this evolution is helping to break long-standing barriers that excluded many viable businesses from formal credit channels.
“Historically, the absence of collateral or formal credit histories led to the systemic exclusion of many viable businesses. A data-driven approach shifts the focus from static assets to dynamic performance, enabling lenders to deploy capital into businesses demonstrating sustainable operational performance,” Oyediran said.
He argued that expanding access to merchant financing could have far-reaching economic benefits, including job creation, improved productivity and stronger business resilience, especially as Nigeria seeks to reduce its dependence on oil revenues.
“The chasm between a local business and a regional champion is rarely a lack of ambition; it is access to capital that remains a significant constraint for many businesses,” he said.
Oyediran urged policymakers, lenders and stakeholders to prioritise flexible, data-driven financing solutions capable of integrating SMEs into modern credit ecosystems, noting that such interventions are critical to building globally competitive Nigerian businesses.