The Centre for the Promotion of Private Enterprise has raised concerns over weak credit flows to small businesses despite recent banking sector reforms.

A policy brief released on Sunday read, “More critically, credit to small and medium enterprises is alarmingly low. SME credit accounts for only about one per cent of total credit, compared to an average of about 5 per cent in sub-Saharan Africa.”

According to the policy brief, the organisation stated that the outcome is troubling given the central role SMEs play in Nigeria’s economy, adding that the segment contributes about 50 per cent of Gross Domestic Product and over 80 per cent of employment, yet faces an estimated financing gap of about N48tn.

The CPPE, led by a renowned economist, Dr Muda Yusuf, acknowledged that the ongoing bank recapitalisation exercise by the Central Bank of Nigeria has strengthened the financial system, but warned that the benefits have yet to translate into meaningful support for the real economy.

According to the group, “while recapitalisation has significantly strengthened the capacity of banks to absorb shocks, support large-ticket transactions and enhance financial system stability, the critical question now is whether this stronger banking system will sufficiently support the real economy,” stressing that “the evidence suggests that this linkage remains weak.”

The policy brief noted that 32 banks had already met the new minimum capital requirements as of March 27, 2026, with no depositor losses, forced mergers, job losses or erosion of shareholder value, describing the process as “orderly, non-disruptive and confidence-enhancing.”

Despite this progress, the CPPE highlighted broader weaknesses in credit delivery, noting that private-sector credit stood at about 17 per cent of GDP in 2025, far below the sub-Saharan African average of 25 per cent and about 34 per cent for lower-middle-income countries.

It added that peer economies such as South Africa, Mauritius, and Cape Verde have significantly higher levels of financial intermediation, highlighting what it described as a “persistent structural disconnect between the financial system and productive sectors of the economy.”

The group further observed that consumer credit remains weak at about seven per cent of total credit, compared to 15 to 25 per cent across sub-Saharan Africa, noting that this “constrains domestic demand and limits growth prospects across multiple sectors.”

Beyond access, the CPPE flagged structural imbalances in credit allocation, stating that about 55 per cent of total lending is short-term, with maturities of less than one year, while only 25 per cent qualifies as long-term credit exceeding three years.

It warned that this pattern does not align with the financing needs of key sectors such as manufacturing, agriculture, infrastructure, and real estate, which require longer-term funding.

Sectoral distribution also remains skewed, with the services sector accounting for about 55 per cent of total credit, compared to 14 per cent for manufacturing and just five per cent for agriculture.

The CPPE attributed the disconnect between banking strength and real-sector performance to several factors, including the crowding-out effect of government borrowing, tight monetary policy, high interest rates, heightened risk perception, and stringent collateral requirements for SMEs.

It added that existing incentives favour short-term, low-risk financial investments over lending to productive sectors. To address these challenges, the group urged authorities to prioritise the next phase of reform by deepening financial intermediation and reconnecting banks to the real economy.

It recommended raising private-sector credit to at least 30 per cent of GDP in the medium term, de-risking SME lending through credit guarantees, improving credit infrastructure, and strengthening monetary policy transmission to ensure that lower rates translate into increased lending.

Other measures proposed include incentivising long-term financing, promoting balanced sectoral credit allocation, expanding access to consumer credit, and addressing the crowding-out effects of public sector borrowing.

While commending the apex bank for delivering an effective, non-disruptive reform process, the CPPE stressed that the ultimate success of recapitalisation would depend on its impact on the broader economy.

“The ultimate success of this reform will be determined not just by stronger balance sheets, but by the extent to which the banking system supports investment, enterprise, job creation and economic transformation,” the brief stated.

It added, “At this critical juncture, the priority must shift from capital adequacy to economic impact. Nigeria needs not just stronger banks, but banks that work for the economy.”