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High Interest Rates Push 51% of Informal Businesses Away from Loans — Report

Rising interest rates and tighter lending policies are discouraging many informal businesses in Nigeria from seeking loans, a new report has revealed.

The 2025 Informal Economy Report by Moniepoint Microfinance Bank shows that more than half of Nigeria’s informal business operators — about 51% — have never taken a loan and do not plan to, compared to 30% recorded the previous year.

According to the report, this sharp increase reflects growing fear among entrepreneurs about high borrowing costs and strict repayment conditions.

“While 30% of respondents reported not borrowing for their business in our previous report, that figure increased to 51% this year. This suggests a clear decline in credit appetite across the informal sector, largely due to tighter lending conditions and a high-interest environment,” the study stated.
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Fear of Debt and Harsh Repayment Terms Lead the Concerns
The research highlights that 36% of respondents avoid borrowing because of the fear of being unable to repay, while 26% said their businesses simply do not require loans. Another 13% blamed unfavourable repayment terms, and 11% prefer using personal savings instead of external credit.

Women entrepreneurs were found to be more cautious about loans than men, mainly because of concerns over interest rates and repayment difficulties.
How Informal Businesses Use Loans
Among those who manage to access credit, nearly 47% use the funds to expand their operations — including equipment purchases, renovations, or opening new outlets. Around 28% spend their loans on purchasing stock, while 12% use the money for daily operating expenses.

The study also shows that microfinance banks have become the leading lenders for informal businesses, accounting for 22% of loans. Digital banks followed with 20%, while commercial banks provided 18%. Cooperatives made up 13%, and the rest came from friends, family, and informal lenders.

Despite these options, access to large loans remains limited. About one-third of respondents said the highest loan they ever obtained was ₦100,000 or less, while only 6% reported getting loans above ₦1 million. Male-owned firms were twice as likely to secure larger loans compared to female-owned businesses.
Government Officials Call for Affordable Credit
Speaking during the report’s presentation in Abuja, the Special Adviser to the President on Job Creation and MSMEs, Temitola Adekunle-Johnson, expressed concern over Nigeria’s high lending rates, describing them as a major obstacle for small business growth.

He urged financial institutions to design friendlier loan products that would enable more entrepreneurs to access credit and expand their businesses.
Also addressing participants, the Minister of Industry, Trade, and Investment, Dr. Jumoke Oduwole, reaffirmed the Federal Government’s commitment to supporting Nigeria’s informal sector, calling it the “heartbeat of the country’s transformation.”
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“From market women to service providers and young entrepreneurs, Nigerians continue to power commerce in ways that are indispensable to our economy,” Oduwole said.
She explained that over 39 million MSMEs contribute nearly 50% of Nigeria’s GDP and employ more than 80% of the workforce.
Government Expands Access to Finance and Markets
The minister noted that the government is actively positioning Nigerian businesses to benefit from the African Continental Free Trade Area (AfCFTA), describing the 1.4-billion-person market as a real opportunity for local entrepreneurs.

She added that the administration has already integrated AfCFTA tariff concessions into trade routes and recently launched an air cargo export corridor to Uganda to speed up Nigerian exports.

Dr. Oduwole also mentioned targeted government initiatives such as:
SMEDAN Enterprise Support Programme,
Women Exporter to Digital Economy Fund — a $50 million project launched in August to equip female entrepreneurs with digital tools, global networks, and market access.
She emphasized that the government will continue to back innovation in technology, renewable energy, and manufacturing, ensuring that Nigerian enterprises grow across Africa.

SMEDAN Pushes for Lower Taxes and Business Formalisation

The Director-General of the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN), Charles Odii, said informal businesses remain the backbone of Nigeria’s economy but continue to face hurdles such as multiple taxes and high operating costs.
Odii disclosed that the new report sampled over five million businesses, up from two million in the first edition. He said the expansion was part of SMEDAN’s effort to provide data-driven policies that reflect the realities of Nigerian entrepreneurs.
He added that the recent tax reform signed by President Bola Tinubu would help more businesses enter the formal sector.

“We are formalising 250,000 small businesses at no cost — an initiative worth about ₦6 billion,” he said.
According to him, SMEDAN has also introduced co-working hubs with production equipment, logistics discounts of up to 50%, and is partnering with the Securities and Exchange Commission (SEC) to list 1,000 small businesses on the capital market.
Moniepoint and IFC Back Inclusive Financial Research
The Managing Director of Moniepoint Microfinance Bank, Babatunde Olofin, described the report as a reflection of Nigeria’s economic pulse, supported by the International Finance Corporation (IFC), SMEDAN, and the Federal Ministry of Industry, Trade and Investment.

He called for collaborative action to ensure that the report’s findings translate into tangible policies that empower small businesses.
“The informal economy sustains millions of Nigerian households. We must ensure that no vulnerable entrepreneur is left behind,” he added.
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