Banks Urged to Back MSMEs, Not Just T-Bills
A Nigerian bank can earn a tidy return by buying government securities, sleeping well, and avoiding the messy work of chasing small-business borrowers. An MSME, by contrast, may need handholding, flexible collateral, fast underwriting and patience when cash flow is seasonal.
That is the heart of the debate reopened by the Chartered Institute of Bankers of Nigeria’s fresh call for banks to do more than warehouse liquidity in government debt. The message is timely: if Nigeria wants jobs, production and export capacity, capital cannot keep flowing mainly to the safest paper in the room. It has to reach the tailor in Aba, the logistics operator in Ogun, the food processor in Kaduna and the software startup in Lagos.
But the question is not whether banks should fund MSMEs. It is whether the incentives are strong enough for them to do so at scale — and at rates small businesses can actually survive.
Why Government Debt Keeps Winning
For banks, government securities offer a powerful combination: relatively low credit risk, liquid markets and predictable yields. When Treasury bills and bonds are attractive, a bank treasurer does not need to defend the decision for long. The borrower is the sovereign, the instrument is tradable, and the compliance burden is familiar.
MSME lending is different. A ₦10 million working-capital loan to a small manufacturer may require site visits, inventory checks, customer verification, collateral documentation and repeated monitoring. The business may have weak records, informal accounting, irregular cash flow and exposure to sudden changes in FX, power costs or transport prices.
That does not mean MSMEs are unbankable. It means they are expensive to underwrite using traditional banking models.
Consider a Lagos-based food processor that supplies supermarkets. Its orders are steady, but retailers pay after 45 to 90 days. The business needs financing to buy packaging and raw materials before payment arrives. A bank looking only at landed property collateral may reject the application. A bank looking at invoices, purchase orders, account turnover and buyer history may see a viable short-tenor lending opportunity.
The difference is not the business. It is the lending model.
The Credit Gap Is an Economic Problem, Not a Niche Issue
MSMEs are not a side story in Nigeria’s economy. They are the economy’s employment engine, spread across trade, agriculture, light manufacturing, services and technology. When they cannot access credit, the effect shows up in low productivity, thin inventories, delayed expansion and fewer jobs.
The World Bank’s Enterprise Surveys have repeatedly identified access to finance as a major constraint for Nigerian firms. The Central Bank of Nigeria has also tried to address this through targeted frameworks such as the Micro, Small and Medium Enterprises Development Fund. Yet the lived experience of many entrepreneurs remains familiar: long application timelines, high collateral demands, expensive rates and loan offers that arrive too late to be useful.
A small distributor may not need a five-year loan. It may need ₦5 million for 60 days to clear goods before a festive-season sales spike. A poultry farmer may need structured finance tied to production cycles. A school owner may need a bridge facility before term fees come in. A solar installer may need inventory finance backed by confirmed customer contracts.
These are bankable needs — but they require banks to move from collateral-first lending to cash-flow-based lending.
Why CIBN’s Call Matters Now
CIBN’s intervention matters because it is coming at a moment when Nigeria is trying to rebalance growth away from financial arbitrage and toward production. Higher interest rates have made the cost of borrowing painful for businesses, while government borrowing has kept securities attractive to banks and institutional investors.
That creates a policy tension. On one hand, government needs to finance deficits and manage liquidity. On the other, an economy starved of private-sector credit cannot generate enough broad-based growth to expand the tax base, reduce unemployment and strengthen local supply chains.
If banks over-concentrate on government debt, they may remain profitable without necessarily deepening the real economy. That is commercially rational in the short term, but risky for the country in the long term. A banking system ultimately depends on the health of the economy around it.
The strongest argument for MSME lending is not charity. It is market creation. Today’s small borrower can become tomorrow’s corporate account, payroll customer, trade-finance client and deposit generator.
A bank that helps a small cosmetics manufacturer formalize sales records, digitize collections and finance inventory is not merely issuing a loan. It is building a customer franchise.
What Would Make Banks Listen?
Moral persuasion alone will not move balance sheets. Banks will listen when MSME lending becomes commercially safer, faster and more profitable on a risk-adjusted basis.
First, Nigeria needs better credit infrastructure. The national collateral registry, credit bureaus and bank verification systems have improved the lending environment, but many MSMEs still operate outside clean data trails. Banks and fintech partners can change this by using account turnover, POS receipts, invoices, mobile money records, tax filings and supply-chain data to score borrowers.
Second, credit guarantees need to be more practical. A well-designed guarantee scheme can reduce lender fear, but only if claims are transparent, fast and trusted. If banks believe a guarantee will be difficult to enforce, it will not change behaviour.
Third, development finance should crowd in private capital rather than replace it. Concessionary funds can be useful, but they often reach too few firms or become distorted by politics and paperwork. A better model is blended finance: public or development capital absorbs part of the risk, while banks originate and monitor loans through clear commercial rules.
Fourth, banks should build sector-specific MSME desks. Lending to a fashion cluster in Aba is not the same as lending to rice millers in Kano or logistics fleets in Lagos. Sector knowledge reduces risk. It helps banks understand margins, repayment cycles, supplier relationships and warning signs.
Finally, MSMEs must also meet the market halfway. Many business owners need to separate personal and business accounts, keep proper records, file taxes, document invoices and use digital payment channels. A business that cannot show its cash flow should not be surprised when lenders price it as high risk.
Cheaper Credit Will Require More Than Speeches
The hope behind CIBN’s call is that banks will redirect more capital to productive businesses. But cheaper MSME finance will not happen simply because bankers are urged to be patriotic.
It will happen when the risk premium falls.
That means better borrower data, stronger legal enforcement, faster dispute resolution, credible guarantees and macroeconomic stability. It also means banks must stop treating MSME finance as a corporate social responsibility box and start treating it as a serious growth market.
There is money to be made in MSMEs — but not by using the same tools designed for large corporates. The winning banks will be those that combine technology, sector expertise and disciplined risk management.
Conclusion
CIBN’s call has put the right issue on the table: Nigerian banks cannot build the future by funding government paper alone. Treasury bills may be safe, but they do not hire apprentices, process cassava, export garments or build local software.
Whether banks listen will depend on incentives. If government securities remain easier and more rewarding than MSME loans, capital will follow the easier path. But if regulators, banks, fintechs and business owners reduce the real risks around small-business lending, the shift can happen.
Nigeria does not need banks to abandon prudence. It needs them to apply it more creatively — where the jobs, factories and future customers are.