SMEs trapped in N48tn finance gap as banks fail to revive real estate sector, report warns

Nigeria’s small and medium-sized businesses are grappling with a massive $48 trillion financing gap, amid concerns that recent banking reforms have not yet translated into significant credit to the manufacturing sector, a new report has revealed.

The Center for the Promotion of Private Enterprise (CPPE) sounded the alarm in a policy brief on Sunday, saying that despite improvements in the banking system, the flow of credit to SMEs remains alarmingly low.

According to the report written by economist Muda Yusuf, loans to SMEs represent only about 1% of total bank credit in Nigeria, far below the sub-Saharan African average of 5%.

The CPPE warned that the imbalance is particularly worrying given the central role of SMEs in the economy, pointing out that they contribute around 50% of gross domestic product and account for more than 80% of employment in the country.

“More critically, credit to small and medium enterprises is alarmingly low,” the report said, adding that the estimated financing gap of N48tn continues to constrain growth, innovation and job creation.

While acknowledging the ongoing bank recapitalization by the Central Bank of Nigeria as a positive step, the CPPE said the operation has not yet produced significant benefits for the real sector of the economy.

“Although the recapitalization has significantly strengthened the ability of banks to absorb shocks… the crucial question now is whether this stronger banking system will sufficiently support the real economy,” the group said, warning that “evidence suggests that this link 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 seamless, with no depositor losses, forced mergers or erosion of shareholder value.

However, broader credit indicators remain weak, with credit to the private sector estimated at around 17% of GDP in 2025, well below the sub-Saharan African average of 25% and far behind the 34% recorded in lower-middle income economies.

The CPPE also expressed concern about the credit structure in the country, pointing out that around 55% of loans are short-term, with maturities of less than one year, while only 25% are long-term loans of more than three years.

He argued that this structure is not suitable 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 around 55% of total credit, while manufacturing gets 14% and agriculture just 5%.

The group attributed the weak credit flow to several structural challenges, including high government debt, restrictive monetary policy, high interest rates, risk aversion among lenders and strict collateral requirements that exclude many small businesses.

It also noted that consumer credit remains underdeveloped, standing at around 7% of total loans – significantly below the range of 15 to 25% in other parts of sub-Saharan Africa – thus limiting domestic demand and economic expansion.

To fill these gaps, the CPPE called on policymakers to go beyond strengthening bank balance sheets to ensure credit flows more effectively into the real economy.

The group recommended increasing credit to the private sector to at least 30% of GDP in the medium term, introducing credit guarantees to reduce the risks of lending to SMEs and improving credit infrastructure to improve access to finance.

It also urged the authorities to strengthen monetary policy transmission, incentivize long-term lending and reduce the crowding-out effect of public sector lending.

According to the CPPE, the ultimate success of banking reforms will not be measured only by the strength of financial institutions but by their impact on business development and job creation.

“At this critical time, the priority must shift from capital adequacy to economic impact. Nigeria not only needs stronger banks, but banks that work for the economy,” the report adds.

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