High Interest Rates Force 51% of Informal Businesses to Shun Loans – Report

Rising interest rates and tougher lending requirements are discouraging many informal businesses in Nigeria from accessing credit facilities.

According to the 2025 Informal Economy Report by Moniepoint, more than half of small business owners — about 51 percent — said they have never taken a loan and have no plans to do so. This marks a sharp increase from 30 percent recorded in the previous year.

“While 30 percent of respondents reported not borrowing for their businesses in our previous report, the figure rose to 51 percent this year,” the report noted. “This indicates a growing decline in credit appetite among informal and small business operators, largely due to higher interest rates and tougher loan conditions.”

Fear of Repayment, Unfavourable Terms Keep Entrepreneurs Away

The report revealed that the fear of being unable to repay loans remains the biggest reason why business owners avoid borrowing, cited by 36 percent of respondents.

About 26 percent said their businesses currently do not need loans, while 13 percent blamed their reluctance on unfavourable repayment conditions. Another 11 percent said they prefer using personal savings or family funds to run their operations.

Women were also found to be more cautious about taking loans, mainly due to concerns about repayment and high interest charges.

How Nigerian Small Businesses Use Loans

Among the small number of entrepreneurs who access credit, most use it to expand business operations. About 47 percent said their loans went into equipment purchase, renovations, or opening new branches, while 28 percent used funds to buy stock.

Another 12 percent said they used credit to handle daily expenses, while a few relied on it for emergencies or personal needs.

Microfinance Banks Dominate Loan Access

Microfinance banks have become the leading source of business loans, accounting for 22 percent of all borrowing among informal businesses. Digital banks and online lenders followed closely with 20 percent, while commercial banks contributed 18 percent.

Other sources such as cooperatives (13 percent), family and friends, thrift groups, and private lenders made up smaller portions.

The report also revealed that female entrepreneurs are more likely to depend on informal lending channels compared to their male counterparts.

Access to large loans remains a challenge. One in three businesses said the highest loan ever received was ₦100,000 or less, while only six percent secured loans above ₦1 million. Male-owned businesses were twice as likely as female-owned ones to access loans exceeding that amount.

FG Urges Financial Institutions to Ease Access to Credit

Speaking at the report launch in Abuja, the Special Adviser to the President on Job Creation and Micro, Small and Medium Enterprises (MSMEs), Temitola Adekunle-Johnson, expressed concern over the rising cost of borrowing.

He appealed to financial institutions to design loan products that make it easier for small businesses to access funding without heavy interest burdens.

Similarly, the Minister of Industry, Trade and Investment, Dr. Jumoke Oduwole, reaffirmed the Federal Government’s commitment to strengthening Nigeria’s informal economy — describing it as a major engine of trade, innovation, and employment.

Representing Vice President Kashim Shettima, Oduwole praised local entrepreneurs for driving economic resilience through small-scale trade and creativity.

“From market traders to service providers and young innovators, Nigerians continue to power commerce in ways that sustain our economy,” she said.

39 Million MSMEs Drive Nigeria’s Economic Growth

The minister highlighted that over 39 million micro, small, and medium enterprises (MSMEs) contribute nearly half of Nigeria’s national output and employ over 80 percent of the workforce.

She added that Nigeria is positioning itself to benefit from the African Continental Free Trade Area (AfCFTA), calling the 1.4 billion-person market “a real and unfolding opportunity.”

According to her, government efforts now focus on improving access to markets and affordable finance through initiatives like:

• SMEDAN Enterprise Support Programme
• Women Exporter to Digital Economy Fund, a $50 million project launched to empower women-led businesses
• New air cargo export corridors linking Nigeria to regional markets

Oduwole stressed that the administration would continue to support technology, clean energy, and manufacturing innovators, ensuring that small businesses can grow beyond Nigeria’s borders.

SMEDAN Launches New Interventions for MSMEs

The Director-General of the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN), Charles Odii, said the informal economy remains critical to survival for millions of Nigerians but noted that taxes and high operational costs discourage formalization.

He disclosed that the first edition of the report sampled two million businesses, while the new version covered over five million, reflecting a stronger data-driven approach to policymaking.

Odii added that the recent tax reforms signed by President Bola Tinubu would help attract more small businesses into the formal sector.

He also announced that SMEDAN is:

• Formalizing 250,000 small businesses at no cost, worth about ₦6 billion;
• Creating shared workspaces with machinery and logistics support discounts of up to 50 percent;
• Collaborating with the Securities and Exchange Commission to list 1,000 small businesses on the capital market to improve access to finance.

Informal Economy Remains Nigeria’s Economic Pulse

The Managing Director of Moniepoint Microfinance Bank, Babatunde Olofin, described the informal economy as the “pulse of the nation”, emphasizing its vital role in sustaining millions of livelihoods.

He said the Informal Economy Report serves as an essential policy guide for shaping inclusive economic growth.

“This report is not just research; it is a reflection of the economic realities faced by millions of Nigerian entrepreneurs,” Olofin said.

He called for collaboration among financial institutions, policymakers, and the private sector to turn the report’s insights into tangible improvements that ensure inclusive growth and financial empowerment.