Government Intervention Funds Reshape MSME Financing as Single Digit Loans Undercut Nigerian Banks

Nigeria’s micro, small and medium enterprise (MSME) credit landscape is increasingly shaped by government backed intervention funds, which are emerging as the most affordable sources of financing in the market, significantly undercutting commercial banks and private lenders on cost.
Across the spectrum, MSMEs face a clear pricing divide. Government and development finance institutions dominate the low-cost end of the market, offering loans at between 5 and 9 per cent per annum.

In contrast, commercial banks typically price SME facilities above 18 per cent annually, while microfinance banks and digital lenders often carry the highest effective rates when converted to yearly costs.
This widening gap highlights the central role of public-sector intervention in supporting small businesses, particularly at a time when high inflation, elevated interest rates and weak consumer demand continue to pressure enterprise growth. Funds managed by institutions such as the Bank of Industry (BoI) and NIRSAL Microfinance Bank have become critical lifelines for MSMEs seeking affordable capital to expand operations, invest in equipment or stabilise cash flow.

The BoI’s MSME fund, which targets priority sectors, offers loans of up to ₦10 million at interest rates as low as 5 per cent per annum. Similarly, the Agri-Business and Small and Medium Enterprise Investment Scheme (AGSMEIS), implemented through NIRSAL Microfinance Bank, provides up to ₦10 million at 9 per cent per annum, with long repayment tenors, extended moratoriums and no requirement for physical collateral. However, access to these facilities remains tightly controlled, with strict eligibility criteria including business registration, sector alignment, approved training and detailed documentation.
At the subnational level, state-backed initiatives such as the Lagos State Employment Trust Fund (LSETF) reinforce this trend. By offering single-digit interest loans capped at ₦5 million, LSETF positions itself as one of the most competitive financing options for MSMEs operating within Lagos, while aligning credit access with job creation and local economic development.

Commercial banks continue to play an important, though more expensive, role in the MSME financing ecosystem. Banks such as UBA, Access Bank, FCMB, Wema Bank and Stanbic IBTC appeal to businesses that require larger ticket sizes, faster disbursement and tailored products such as overdrafts and working capital facilities. These advantages, however, come at a higher cost, often tied to stringent requirements around cash flow history, account relationships and guarantees.
Gender-focused financing initiatives add another layer to the market. Platforms such as Wema Bank’s SARA and FCMB’s SheVentures reflect a growing emphasis on inclusive finance, supporting female-owned businesses through a mix of concessional loans, training and mentorship. While some offerings maintain single-digit pricing, others are linked to broader BoI-managed funds with moderate rates and longer tenors.
Meanwhile, microfinance banks and digital lenders continue to bridge access gaps for micro and informal businesses that struggle to meet bank or government fund requirements. Institutions like BOI Microfinance Bank and Baobab Microfinance Bank prioritise speed and flexibility, but at higher interest rates that reflect increased risk and operational costs.
Overall, Nigeria’s MSME lending market presents a clear trade off affordability versus accessibility. While government backed funds offer the cheapest capital, they remain selective and process-heavy. Commercial and alternative lenders, though more costly, provide speed and flexibility. For policymakers, the challenge lies in scaling low-cost intervention funds without compromising sustainability, while for MSMEs, the key decision remains balancing cost, eligibility and urgency in accessing finance