Nigeria’s macroeconomic story has changed in important ways.
The foreign-exchange market is more transparent than it was during the period of multiple exchange rates. External reserves have improved. The gap between official and parallel-market exchange rates has narrowed at different points. The Central Bank has also begun to reduce the Monetary Policy Rate, bringing it to 23 per cent at its September 2026 meeting after earlier tightening.
These are meaningful changes.
Yet ask a Nigerian manufacturer, retailer, school owner, logistics company or technology business about borrowing and the answer is often the same: money is still too expensive.
A business that needs working capital can still face lending rates far above what would make expansion comfortable.
This creates a puzzle.
If the macroeconomy is stabilising, why has cheap credit not returned?
The answer is that monetary stability and affordable lending are connected, but they are not the same thing.
The policy rate is not the rate your business pays
The Monetary Policy Rate is one of the signals the Central Bank uses to influence financial conditions.
When the MPR is high, borrowing across the economy tends to become more expensive.
When it falls, lending rates can eventually follow.
But banks do not simply take the MPR and add a fixed margin.
They consider deposit costs, cash reserve requirements, operating expenses, credit risk, inflation expectations, loan maturity and the quality of collateral.
This is why a reduction in MPR does not automatically produce an immediate equivalent reduction in the interest rate offered to an SME.
The transmission takes time.
Sometimes it is weak.
Nigeria’s cash reserve requirement remains very high
One important reason credit remains expensive is liquidity regulation.
The Central Bank has retained a Cash Reserve Requirement of 45 per cent for deposit money banks.
This means a large share of eligible deposits is sterilised rather than available for lending.
There are reasons for the policy.
High liquidity can fuel inflation and foreign-exchange pressure.
But there is also a trade-off.
When banks have less deployable liquidity, the funds they can lend become more valuable.
This can contribute to high lending rates.
Nigeria therefore faces a balancing problem.
It wants lower inflation and a stable currency.
It also wants businesses to access affordable credit.
The transition has to be managed carefully.
Inflation expectations still influence loan pricing
A lender cares about the future value of money.
If inflation is high, a loan repaid years later may be worth much less in real terms.
The bank therefore prices that risk.
Even when headline inflation begins to decline, lenders may wait for evidence that the improvement will last.
This is one reason interest rates often fall more slowly than inflation.
Businesses may see a better inflation number and expect immediate relief.
Banks may still be looking at the next two years.
Credibility matters.
The more predictable inflation becomes, the easier it is to price long-term loans.
Credit risk in Nigeria is expensive
Banks also price the probability that borrowers will not repay.
In a difficult business environment, that probability can be significant.
A manufacturer may face power outages, exchange-rate shocks, weak consumer demand, imported input costs and delayed government payments.
A transport company may face fuel volatility and road insecurity.
A farmer may face weather risk.
The bank prices these uncertainties into the loan.
This means that lowering the MPR without improving the operating environment may produce only limited relief.
Cheap credit is partly a monetary-policy outcome.
It is also a business-environment outcome.
Collateral requirements exclude many otherwise viable firms
Many Nigerian SMEs do not have the kind of collateral commercial banks prefer.
They may have strong cash flow but weak formal assets.
Property documents may be incomplete.
Business accounts may not be well prepared.
This increases the bank’s perception of risk.
The result is a paradox.
The firms most in need of credit often struggle most to qualify for it.
Credit-guarantee schemes can help.
So can movable-asset registries, invoice finance and better credit bureaus.
The objective is to make lending decisions depend more on business performance and less on whether the owner has a valuable building.
Stable FX helps, but it does not directly create cheap naira loans
Foreign-exchange stability is valuable for businesses.
It reduces uncertainty around imported machinery, raw materials and foreign obligations.
It can also reduce inflationary pressure.
But the foreign-exchange market is not the domestic credit market.
A stable naira does not automatically make a bank willing to lend cheaply.
The bank still needs confidence that the borrower can repay.
This is why FX reform should be seen as one layer of the process.
It improves the environment.
It does not replace credit reform.
Government borrowing can crowd private borrowers
Banks have choices.
They can lend to a business and take commercial risk.
Or they can buy government securities.
If government instruments offer high yields with lower perceived risk, banks may prefer them.
This can crowd out private-sector lending.
A manufacturer asking for a five-year loan competes indirectly with government debt instruments that may be easier for a bank to hold.
Reducing this crowding-out effect requires better public finances.
If government deficits fall and borrowing pressure reduces, more balance-sheet capacity may become available for businesses.
Fiscal reform is therefore part of the credit story.
Short-term deposits make long-term lending difficult
Many Nigerian bank deposits are short term.
Customers can withdraw money quickly.
But factories need long-term loans.
A bank cannot safely fund every five-year loan with money that depositors may demand tomorrow.
This maturity mismatch limits long-term industrial finance.
Nigeria needs deeper capital markets, pension investment, insurance funds, development-finance institutions and securitisation structures that can provide longer-tenor money.
Affordable business credit cannot depend on commercial banks alone.
Development banks should fill specific gaps
Institutions such as the Bank of Industry exist because ordinary commercial banking may not provide enough patient capital for industry.
Development finance can support manufacturing, agriculture, women-owned businesses and other priority sectors.
But these institutions need discipline.
Loans should not become political grants.
Projects must be viable.
Repayment matters.
The strongest development bank is one that can recycle capital repeatedly because borrowers succeed and repay.
Nigeria needs more patient finance, but not weaker credit standards.
Credit guarantees can reduce the risk premium
A credit guarantee does not give a business free money.
It shares some of the lender’s risk.
This can encourage banks to lend to categories they would otherwise avoid.
The Bank of Industry and National Credit Guarantee Company have already announced guarantee arrangements for women-led businesses.
Similar structures can support manufacturing and SMEs more broadly.
The key is design.
Guarantees should target market failures, not cover obviously bad loans.
If lenders know government will absorb every loss, they may become careless.
Risk sharing should improve lending, not eliminate responsibility.
Better business records can lower borrowing costs
Many SMEs can improve their own credit position.
Formal accounts matter.
Tax records matter.
Digital transaction histories matter.
Clear ownership structures matter.
Businesses that separate personal and company finances are easier to evaluate.
The growth of digital payments creates an opportunity.
A company with years of verifiable sales data may be able to demonstrate creditworthiness even without traditional collateral.
Fintech lenders are already using alternative data.
Commercial banks will increasingly do the same.
This can widen access, although it must be balanced with data-protection rules.
Nigeria needs more competition in business finance
Traditional banks should not be the only route.
Leasing can finance machinery.
Factoring can convert invoices into working capital.
Supply-chain finance can help suppliers receive payment earlier.
Venture debt can support some technology companies.
Cooperative finance can serve smaller businesses.
Capital markets can fund larger firms.
The more channels exist, the less every business depends on one bank manager.
Financial innovation can reduce the cost of capital even before interest rates fall dramatically.
Why a 30 per cent loan can destroy a good business idea
High interest rates change business behaviour.
A company may identify an investment that could generate a 20 per cent annual return.
In a low-rate environment, that may be attractive.
If borrowing costs 30 per cent or more, the project becomes irrational.
The firm does not invest.
Workers are not hired.
Equipment is not purchased.
Output does not increase.
This is why expensive credit is not only a problem for business owners.
It affects economic growth.
A country cannot industrialise easily when productive companies cannot borrow below the expected return on their investments.
Rate cuts need time to move through the system
The September reduction of the MPR to 23 per cent is an important signal.
But businesses should not expect bank lending rates to collapse immediately.
Banks will watch inflation, exchange rates, liquidity and government borrowing.
The Central Bank may also remain cautious because cutting too quickly could reignite price or currency pressure.
The direction matters.
If inflation continues to fall and FX stability holds, further easing may become possible.
The greatest benefit will come if the reduction is gradual but credible.
The policy goal should not be artificially cheap money
Nigeria has experienced periods when directed credit and subsidised schemes created distortions.
Cheap money can be attractive politically.
But if rates are held far below inflation or risk, lenders ration credit.
Connected firms may benefit.
Smaller firms remain excluded.
A better goal is sustainably cheaper money.
That means lower inflation, stronger institutions, better borrower information, lower government borrowing pressure and more competition in finance.
Rates should fall because risk and macroeconomic instability fall.
Businesses need a path from 30 per cent to investable rates
For an SME, the policy debate becomes meaningful only when the loan offer changes.
A company borrowing at 30 per cent wants to know what would bring the cost closer to 20 per cent, 15 per cent or lower.
Several things have to move together.
Inflation must decline.
The policy rate must continue to ease when conditions allow.
Liquidity constraints must become less severe.
Government borrowing should reduce.
Credit risk should fall.
Guarantee and development-finance systems should expand.
Banks should use better data.
No single reform produces the answer.
The real economy is the final test of monetary reform
Central-bank reforms are often judged first by financial-market indicators.
Reserves.
Exchange rates.
Inflation.
Market transparency.
These matter.
But they are intermediate outcomes.
The final test is whether a business can plan, borrow, invest, employ and expand.
Nigeria should therefore track the cost and maturity of private-sector credit as closely as it tracks the naira.
How much are SMEs actually paying?
How many businesses receive loans longer than three years?
Which sectors receive credit?
How much lending goes to production rather than consumption?
These data would show whether stabilisation is reaching the economy.
Stability should eventually become affordability
Nigeria needed to restore credibility to monetary and foreign-exchange policy.
That process has costs.
The country is now moving into the next phase.
Businesses need to feel the benefit.
That does not mean forcing banks to lend at unrealistic rates.
It means creating an economy in which the underlying risks that make lending expensive begin to fall.
When inflation is lower, government borrowing is more disciplined, FX is predictable and business records improve, the price of credit should follow.
If it does not, regulators and policymakers will need to ask why.
The FX market can look healthier while a factory still cannot finance a new production line.
Reform is complete only when both pictures improve.
Sources and further reading
- CBN Monetary Policy Decisions, September 2026
- CBN reforms and initiatives
- PUNCH coverage referenced in the FridayPosts editorial brief: CBN reforms face real-economy test
A. Joshua Adedeji
A. Joshua Adedeji is a leadership strategist, organisational development consultant, author, teacher and values-driven transformation leader. He writes on leadership, strategy, governance, organisational effectiveness, business, personal development and Nigeria’s social and economic transformation, connecting ideas and current realities to practical implications for leaders, institutions, entrepreneurs and citizens. His work is shaped by a commitment to clear thinking, responsible leadership, stronger institutions and the development of people and systems capable of producing lasting impact.
Reader conversation
0 approved comments