The Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, has 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, where less than five 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, in an interview with The Guardian, 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 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.

According to him, recapitalisation should enable banks to finance larger projects, expand financial inclusion and take on more calculated risks across key productive sectors of the economy. He said the additional capital should translate into increased lending to agriculture, manufacturing, real estate, infrastructure and, most importantly, small businesses.

He stressed that many businesses and individuals operating outside the formal financial system should now have greater access to banking services and credit facilities.

Yusuf, however, said banks alone cannot solve the problem, insisting that the government must create a supportive regulatory environment that reduces the risks associated with lending to priority sectors.

He identified the establishment of an effective credit guarantee scheme as one of the most important measures needed to encourage banks to extend more loans to manufacturers, farmers, property developers and SMEs.