Credits to flow to small businesses: one of the biggest constraints faced by small and medium sized companies in Nigeria is the lack of access to credit. However, new banking regulations aimed at weeding out weak institutions are creating a stronger financial sector, which in turn will enable a greater diversity of credit.

Author:Ford, Neil

One of the factors which divides industrialised economies from those in sub-Saharan Africa is the lack of access to credit. If a small businessman in the US, UK or Western Europe has a good idea for a new venture, or is seeking funding to help expand an already successful company, then the chances are that a local bank will be able to provide a loan on reasonable terms. Medium sized companies also have the option to offer equity participation to lenders or larger companies working in the same field. The financial sector in most of Africa, however, does not work in the same way.

Most African small businessmen or women must save before they can invest, or at the very least rely upon their extended family to provide financial support. There are few local banks willing to provide credit facilities for smaller firms and those that do often impose unattractive terms of repayment. Yet helping African economies move away from their dependence on the production of raw materials, whether agricultural produce, mining commodities or oil and gas, must centre upon the development of the small and medium sized enterprises (SMEs) that form the bedrock of almost every successful economy.

SMEs create most employment, provide a greater degree of economic stability and very often contribute the lion's share of GDP in industrialised economies. Most Africans may be employed by micro or small-scale businesses but most GDP is generated by the large-scale export orientated extraction and agricultural companies. The provision of localised access to credit therefore seems to be a prerequisite for broad-based economic activity in Africa.


Nigeria is a prime example of an African country where the development of the non-oil sector is held back by the inability of smaller firms to access credit facilities. Some small steps have been taken over the past five years of civilian rule that have improved the situation, but only a small minority of businesses yet have adequate banking support. Moreover, the vast majority of Nigerian companies have almost no chance of securing credit from legitimate overseas lenders.

Over the past three years, the federal government and the Central Bank of Nigeria (CBN) have tightened up the country's banking regulations, partly in order to create a more conducive investment climate. However, if the Nigerian banking sector is to become a truly effective tool of economic progress then the incidence of corruption needs to be...

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