Onome Amuge
Micro, Small and Medium Enterprises (MSMEs) remain the heartbeat of Nigeria’s economy, contributing nearly half of national GDP and employing close to 90 percent of the workforce. But new research reveals that while these enterprises embody the resilience and creativity of Nigerians, they continue to struggle with financing gaps, high inflation, and an uncertain policy environment.
According to a new MSME finance and revenue report authored by Businessfront’s research arm, Intelpoint, and endorsed by the Lagos State Employment Trust Fund (LSETF), more than half of Nigerian small businesses rely on personal savings to stay afloat, with only 15.7 percent managing to access bank loans. The study, which surveyed thousands of entrepreneurs across the country’s six geopolitical zones, shows that while optimism for 2025 is high, systemic challenges could stifle the ability of MSMEs to scale and deliver on their growth ambitions.
In a foreword to the report, Feyisayo Alayande, executive secretary of LSETF, described MSMEs as the driving force behind economic growth, stressing their resilience and central role in Nigeria’s development.
“According to the NBS/SMEDAN MSME 2021 survey report, MSMEs contributed 46.32% to GDP, accounted for 6.21% of exports, 96.9% of businesses, and 87.9% of employment. These businesses are not just engines of survival; they are a testament to the resilience, creativity, and determination of the Nigerian people,” Alayande wrote.
Alayande added that supporting MSMEs is not only a matter of survival but also of national competitiveness. “Growth doesn’t happen in isolation, collaboration is the catalyst that unlocks new opportunities,” she noted.
The report finds that personal savings remain the most common source of funding for small businesses (51.1 percent). Friends and family provide another 16.9 percent, while bank loans make up just 15.7 percent of financing. In contrast, government grants and investors account for a combined 16.3 percent.
This lopsided reliance on personal funds underscores a long-standing credit gap. According to the International Finance Corporation (IFC), Nigeria’s MSMEs face an unmet financing demand estimated at N13 trillion. In 2023, commercial banks disbursed N39.29 trillion in credit to the private sector, but only ₦465.37 billion, or 1.07 percent, went to small-scale enterprises.
The gender gap further complicates access. Female entrepreneurs are less likely to secure loans than men and rely more on family support, even though some sectors show women outperforming men in monthly revenue. A 2021 Journal of Corporate Finance study cited in the report noted that female-led firms globally face a 10 per cent lower chance of receiving credit at startup stage.
Geography plays a major role in shaping outcomes for MSMEs. The South West, buoyed by Lagos’ dominance as a financial hub, outperforms all other regions in access to loans, average revenue, and optimism for future growth. Businesses in Lagos report an average monthly revenue of N47.8 million, far above the national median of N1.9 million.
By contrast, northern businesses, while numerous and entrepreneurial, struggle with weak infrastructure, insecurity, and limited financial inclusion. Over 70 per cent of firms earning less than N100,000 monthly are in the northern regions.
This uneven distribution reflects broader structural gaps, with 69 percent of Nigeria’s bank branches located in the south, with Lagos alone accounting for 42 percent.
The findings also highlight the role of education in shaping MSME outcomes. Entrepreneurs with higher education credentials report stronger revenues than peers with little or no formal education. Those with HND/BSc degrees earn on average N2.7 million monthly, compared to N243,000 for those with only primary education.
Sectoral analysis shows manufacturing leading with an average of N8.27 million in monthly revenue, followed by energy, entertainment, ICT, and healthcare. Food and beverages remain the most common MSME sector but generate lower average revenue compared to capital-intensive industries.
Still, business survival remains precarious. More than 74 percent of surveyed firms are under 10 years old, aligning with global statistics that show nearly half of small businesses fail within five years.
The cost of doing business
The most significant challenges facing MSMEs today are macroeconomics. Inflation, which has eroded purchasing power, remains the single largest concern for nearly half of respondents. Rising fuel costs after subsidy removal, naira depreciation, and high interest rates have further driven up the cost of goods and services.
High cost of doing business (19.4 percent), poor access to finance (15.4 percent), and erratic power supply (14.1 percent) top the list of constraints. In 2024 alone, Nigeria’s electricity grid collapsed 12 times, forcing businesses to spend over N1.11 trillion on alternative energy sources, up from N781.68 billion in 2023.
Government support: limited reach, mixed impact
Only one in four businesses surveyed said they had benefitted from government support programmes such as grants, loans, or training. Among those who did, tax breaks and subsidies had the most tangible impact. However, respondents cited lack of transparency, favoritism, and bureaucratic hurdles as key barriers to accessing government aid.
While some policies, such as streamlined licensing processes, have had a positive effect, 58 percent of MSMEs reported being negatively impacted by recent government policies.
Despite these hurdles, Nigerian entrepreneurs remain optimistic. Nearly 70 percent of surveyed business owners believe their enterprises will perform significantly better by the end of 2025. Their top goals include improving profitability, expanding operations, and exploring new markets.
Strategies for survival include cost reduction, diversifying products and services, and seeking new financing sources. But without systemic reforms in access to finance, infrastructure, and regulatory transparency, many of these strategies risk falling short.
The report made a call to action for policymakers, financial institutions, and investors. Expanding affordable credit, reducing tax burdens, investing in infrastructure, and providing targeted skills training are cited as critical to unlocking the sector’s potential.
Alayande stressed that MSMEs are not just survival engines but central to Nigeria’s long-term growth. There is more we can do within the ecosystem.Collaboration is the catalyst that unlocks new opportunities,” she noted
