Is it good business to lend to Nigerian SMEs?

Access to finance seems to be the most difficult to run a small and medium enterprise (SME) in Nigeria, even when funds are available interest rates are usually high.

“There are a lot of opportunities on the continent [Africa] but capital is very hard to come by.” – Tony Elumelu

For example, microfinance banks would charge up to 75% per year on loans, and interest from digital lenders can exceed 30% per month – then we have predatory lenders who sometimes in desperation these entrepreneurs will ask them for loans since most commercial banks are reluctant to lend to individuals.

In 2020, the Nigerian Small and Medium Enterprises Development Agency estimated that there were around 39.6 million SMEs in Nigeria with a population of 200 million. Compared to other more populous countries, such as the United States with 30 million SMEs, India with 42 million SMEs, China with 38 million SMEs and Indonesia with 64 million SMEs, it is clear that Nigeria and Africa have many more entrepreneurs than these countries. other regions.

More than 95% of SMEs say they need less 350,000 ($745) in annual credit. However, with all the credit providers popping up, there is still only an approximate 2-5% penetration.

Although the Central Bank of Nigeria (CBN) has ventured into retail lending to cushion the credit crunch, experts have argued that the intervention funds are fueling inflation in Nigeria. “Engaging in retail lending is not the CBN’s function,” says Chartered Institute of Bankers fellow Chris Enyinnaya.

SME Loan Repayment Rates in Nigeria

Besides the CBN, digital lenders like Pennee and Payhippo provide loans to SMEs nationwide. By February, Payhippo had disbursed over $10 million in loans to Nigerian businesses. 97% of all money disbursed over the past two years has been raised,” according to Zach Bijesse, co-founder of Payhippo. “The lowest [repayment] months were when covid started in early 2020: Our collection rate dropped to 93% in March 2020.”


Disclosure: This article was inspired by Zach’s story on Payhippo. We tried to join the team but learned that Payhippo was on a media break, at the time of this report. So we chatted with other experts in the Nigerian SME lending space.

“It’s good business to lend to SMEs, mainly because many lenders aren’t keen on lending to small businesses, but there are several in the country,” said Mejero Emmanuella, CEO of Pennee. The loan will probably be seen as a bad deal by the lender when the debtors fail to pay during the term of the loan without proper communication with the lender.

So far, Pennee has recorded a 98.7% refund rate since its launch in 2019, which is slightly higher than Payhippo.


The term of the loan is the length of time the loan is expected to be repaid. This is the time the loan will last until it is fully repaid with regular payments.

According to Mejero, “We think about payback before we give companies money. Also, payback is mostly about the character you’re loaning to. For Pennee, we use direct funding to figure out who’s serious about their business – someone ‘one cannot take money from us and put it into unproductive activities.

The company also offers mentoring to SMEs in its portfolio. Recently, Pennee deployed 25% of its $2.7 million in credit funding to its first cohort of small business accelerators.

To ensure a transparent loan repayment process, Yemisi Isidi, co-founder of Triift Africa, said SMEs should “be open with clear communication.”

“It helps us manage expectations and provide better support and guidance on how to unlock new revenue opportunities in your business niche, better position your business, or even optimize your processes for greater efficiency. Things may turn out differently than expected, but by communicating you provide ample opportunity to adjust payment plans,” she added.

“At Triift Africa, we see ourselves as long-term growth partners for business. For us, ambition really matters. We know that great companies and their brilliant plans may not survive harsh business realities and climates. changing rapidly that they operate in. So we are always thinking about how we can help companies meet these challenges.”

What SMEs should consider before taking out loans

When approaching credit grantors, it is important to have an existing business with good books. Mejero told that “it’s hard for anyone to risk giving you loans if you’re not able to detail your background, so companies have to be careful with accounting.

  • Be aware of lenders terms: You can’t spend all the money you earn on paying off loans, so you need to be careful about interest rates, balance reduction, and early/late payment fees.
  • Good behavior: It is really important to maintain good behavior when approaching lenders. The repayment depends more on the character of the person to whom you are lending than on his capacity. The loan is a relationship of trust!
  • Avoid predatory lenders: SMEs should avoid bad actors, and one way to do that is to not think about credit in an emergency. When setting up your business, consider who your credit providers should be.
  • Keep up to date with your credit report: When dealing with traditional financial institutions, if you have outstanding debt, other institutions will not lend you money. Always make sure to clear any debt!

Related article: Predatory lending in Nigeria: what is the way forward?

Companies that access loans/credit facilities from us [at Triift Africa] are companies that generally have skin in their own business. It could be your own personal investment as a founder, a clear effort, or a plan you have to build something profitable. — Yemisi Isidi.

Further, Isidi said that “Having the right business and legal framework/structures can make it easier for you to access credit facilities from us. For example, if your business is not registered, or if the founder doesn’t have clear boundaries like a business account or even transparency to separate personal expenses from business expenses, which can quickly become a barrier to accessing credit.”

“In addition, demonstrating strong community ties, particularly your relationship with business communities, can make it easier for a business to access loans. This can include who is willing to refer you, other loans you have obtained and if you’ve repaid and your customer your business relationships largely define your credibility.

“You need to demonstrate a solid understanding of the problem your business is solving, its impact on the market, potential risks and how to mitigate them. Knowing this is very important when raising a loan so that you are very clear on what problem you will solve with the loan and how to repay,” she added.

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