Report Warns Capital System Misallocating Growth Resources

Says financial system remains a choke on MSME development

Declares high MPR, inflation have made productive lending unattractive

Says MSMEs eager for loan not speeches

James Emejo in Abuja

A new report has highlighted a broken capital allocation architecture in the country which systematically rewards financial inactivity over productive lending, leaving millions of enterprises locked out of formal credit.

The report by the Alliance for Economic Research and Ethics (AERE) chaired by Hon. Dele Oye, a former National President, Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture (NACCIMA) – stated that the country’s small business economy was being suffocated.

He added that the credit system had reached a structural breaking point where monetary policy, fiscal behaviour, and institutional weaknesses now reinforce one another to exclude the enterprises that drive jobs and output.

The report warned that despite interventions such as the World Bank’s $500 million FINCLUDE programme aimed at mobilising $1.89 billion for MSMEs, the country’s underlying credit ecosystem remained fundamentally misaligned with its development needs.

The report also noted that MSMEs account for about 96 per cent of businesses, 48 per cent of GDP, and 84 per cent of private sector employment, yet fewer than one in 20 had access to formal bank credit.

The report described the anomaly as “not a market imperfection, but a structural catastrophe,” pointing out that Nigeria’s financial system had evolved in a way that rationally discourages lending to the productive sector.

It stated that “When an economy the size of Nigeria’s requires a multilateral institution to guarantee hundreds of millions of dollars to mobilise domestic capital for its own small businesses, the problem is not risk. The problem is vision, governance, and the systematic misalignment of financial incentives.”

It added that commercial banks are not necessarily acting irrationally, but responding to incentives created by macroeconomic conditions in which risk-free returns from central bank instruments and sovereign debt outperform SME lending.

The analysis further highlighted the country’s Monetary Policy Rate (MPR) of 26.50 per cent and headline inflation of 15.69 per cent as of April 2026, noting that the resulting real cost of capital had made productive lending unattractive.

Among other things, it stated that the structure of returns in the financial system encourages banks to prefer risk-free instruments over lending to the real economy.

“This is not banker greed. This is banker arithmetic. And until policymakers change the arithmetic, the speeches about financial inclusion will remain precisely speeches,” the report noted.

It further warnes that government borrowing from domestic markets, with treasury instruments yielding between 16 per cent and 22 per cent was crowding out private sector credit demand.

Among other things, the report said, “When sovereign instruments clear at yields of 16–22 per cent, they do not merely compete with SME lending; they obliterate it.

 “The state, in borrowing aggressively from the domestic market, is effectively pricing the private sector out of the credit queue.”

The report also took aim at the country’s development finance institutions, arguing that they are structurally underpowered relative to their mandates.

It noted that DFIs collectively hold just over N8 trillion in assets against an MSME financing requirement estimated above N130 trillion, describing the gap as “not funding shortfall but funding abyss”.

Among other things, the report proposed a broad reform package spanning fiscal discipline, CBN restructuring of liquidity incentives, recapitalisation of DFIs, and deeper MSME formalisation.

It stressed that unless the country re-engineers its credit architecture, financial inclusion will remain a policy aspiration rather than an economic reality.

The report said external interventions are insufficient to solve a structural gap affecting tens of millions of enterprises, adding “Nigeria’s 39 million MSMEs are not waiting for another speech. They are waiting for a loan.”