Rising interest rates and tougher lending conditions are discouraging more Nigerian informal businesses from taking loans, according to the 2025 Informal Economy Report by Moniepoint Microfinance Bank. The report revealed that 51 percent of small and informal business owners have never taken a loan and have no plans to do so, up sharply from 30 percent in 2024. The trend signals a growing credit aversion within Nigeria’s vast informal sector, where millions of entrepreneurs continue to rely on personal funds or savings to sustain operations.
According to the report, the fear of being unable to repay loans remains the top deterrent, cited by 36 percent of respondents. About 26 percent said they did not need loans, while 13 percent blamed high repayment costs and interest rates. Another 11 percent preferred to use personal savings to fund their businesses. Women entrepreneurs, in particular, were found to be more cautious about borrowing, largely due to concerns over repayment pressure and rising credit costs.
For those who do borrow, credit is mostly used to expand operations, with 47 percent using loans for equipment or new outlets and 28 percent for purchasing stock. Microfinance banks have emerged as the most common source of credit (22%), followed by digital lenders (20%) and commercial banks (18%). However, access to large loans remains rare: one in three businesses reported that their highest loan was ₦100,000 or less, while only 6 percent had ever received loans above ₦1 million. Male-owned enterprises were twice as likely as female-owned ones to secure high-value credit.
Speaking at the report’s launch in Abuja, Temitola Adekunle-Johnson, the Senior Special Assistant to the President on Job Creation and MSMEs, expressed concern over Nigeria’s high borrowing costs, urging financial institutions to create accessible loan products for small businesses. Representing Vice President Kashim Shettima, Minister of Industry, Trade and Investment Dr. Jumoke Oduwole reaffirmed the Federal Government’s commitment to empowering small businesses, describing the informal economy as the “heartbeat of Nigeria’s transformation.” She emphasized ongoing initiatives such as the SMEDAN Enterprise Support Programme and the $50 million Women Exporter to Digital Economy Fund, aimed at boosting inclusion and access to finance.
The Director-General of SMEDAN, Charles Odii, highlighted that Nigeria’s 39 million MSMEs contribute nearly half of national output and employ over 80 percent of the workforce, yet many remain outside the formal economy due to tax burdens and operational costs. He noted that SMEDAN is formalizing 250,000 small businesses at no cost and collaborating with the Securities and Exchange Commission to help 1,000 SMEs access capital markets. Moniepoint’s Managing Director, Babatunde Olofin, described the informal economy as the “pulse of the nation,” calling for collective action to turn insights from the report into policies that will make credit more inclusive and sustainable for Nigeria’s millions of entrepreneurs.