Nigeria’s credit market has vast potential, but growth to date has been stymied by poor data quality and regulatory stumbling blocks. Our research suggests banks should partner with fintechs to unlock huge lending opportunities and ignite broader economic growth.

Nigeria is an African economic powerhouse. Consistently notching up growth of 2.7% on average over the last five years,[1] the country is among Africa’s top five performers thanks to its hydrocarbons industry and an increasingly sophisticated and diverse wider economy – including financial services. Between 2020 and 2024, the country’s credit market grew 12% to reach US$27.1 billion total value.[2] Meanwhile, the number of consumers engaged in formal banking rose from 54% in 2020 to 64% by Q1 2024 – with a further 10% engaged with the financial economy on an informal basis.[3]

Impressive statistics – yet the truth is that the credit segment could be far more successful, were it not for inconsistent regulation and low-quality customer data. We recently undertook an analysis of the Nigerian credit market that has highlighted some key action points for banks, fintechs, and regulators with the potential to unlock transformative growth in the wider economy.

Individuals Need Loans: But Corporate Lending Predominates

Although Nigeria’s banks hold 65% of the country’s US$ 27 billion strong loan portfolio, just 8% of bank lending is focused on consumers. Primarily, this comes down to a lack of access to reliable data on which to base decision-making. Banks are able to lend to their own customers with confidence, given their access to data relating to salary and current levels of household leverage – while companies will provide evidence of income and expenses through their accounts. Beyond these existing relationships, banks demonstrate a reluctance to explore new segments or launch new products, despite growing acceptance for payment cards which might make credit cards – as one example – an attractive proposition.

Mind The Gap: Nigerians Turn to Friends and Family For Loans

                                                      Source: KoreFusion analysis

There’s no doubt that the demand for credit is there: indeed, our research suggests there is an enormous gap between Nigerian’s credit needs and what’s currently available. A survey we conducted in late 2023 shows that more than one in four Nigerians (26%) have a credit requirement, usually driven by the need to cover daily expenses. Our study also showed that almost two-thirds of these individuals (58%) end up resorting to friends and family for loans. Accordingly, the rate at which Nigerians borrow money from any form of commercial lender is much lower, at 33.74 per 1000 people, than in compared markets such as Namibia (338 per 1000 people) or Kenya (373 per 1000 people).[4]

Fintechs Emerge to Plug Gaps: But Face Headwinds

The good news is that fintechs are now emerging to plug this gap. By the end of 2024, more than 120 standalone fintech firms were active in Nigeria, collectively benefiting from more than US$ 1 billion of funding, and primarily focused on payments and lending – albeit with a large portion of their products targeted at the SME segment rather than consumers. Where personal lending does exist, it tends to cater to urban affluent consumers in the Lagos region.

While the fintech segment has the potential to power huge growth in the Nigerian economy, three significant challenges must be overcome, the first of which is inconsistent regulation. High barriers to entry and differences between regulation at Federal and State levels makes market entry a challenging prospect for new players – to which one might add the multiple kinds of license which are often required. Once licensed and approved, lenders are required to report all applications and successful loan decisions to credit bureaux prior to extending a loan offer – an onerous step.

A second challenge resides in low-quality data. Data from credit bureaux tends to be too general to inform decision-making with any level of confidence. Some fintechs have tried to circumvent this difficulty by accessing “mystatement”, an Open Banking feature that provides access to the applicant’s salary and spending information in bank accounts. However, a fee of one US dollar per access makes this service an expensive prospect, particularly if the applicant is rejected. In some cases, applicants are surcharged for this, but that adds discouragement and lends itself to lack of faith from consumers in case of denials. More generally, lenders’ experience is that relevant data is fragmented and exists in silos, meaning they are attempting to build credit information databases at their own expense.

Finally, there are no legal consequences for default in a volatile economy often dictated by movements in the price of oil and other commodities. While non-performing loans (NPL) are currently low, they can demonstrate a tendency to spike to worrying levels. For example, 38% of banks’ outstanding debt portfolio is currently held by the highest consumer risk segments and deemed vulnerable to impairments by the Monetary Governance Committee – hardly an enticing prospect for potential lenders.[5]

Partnership is Pivotal – as is Regulatory Consistency

One means of resolving these issues would be for Nigerian banks and fintechs to partner on strengthening their joint data capabilities, working with data aggregators such as LendsQR and microfinancing companies with deep experience of the informal and semi-formal sectors. Banks and fintechs could also seek to leverage Nigeria’s extensive digital wallet acceptance network at point of sale to access further consumer spending data that could inform credit decisions. Finally, entering into dialog with Nigeria’s regulators in an attempt to resolve some of the inconsistencies and barriers to market entry would also be a productive step.

Success with these and other actions raises the prospect of a rich prize; if the number of formal loans granted to Nigerians were to reach parity with peer countries such as Namibia and Kenya, the personal loan market has the potential to surpass US$ 25 billion per annum. This is not only an opportunity for credit, but by extension a means of supporting economic growth in one of Africa’s largest and most promising markets.

KoreFusion optimizes SMB payments strategy across 80 countries. We help banks, brands, and fintechs develop embedded payment and financial services for SMBs. For more information, please reach out to hello@korefusion.com.

[1] Trading Economics, accessed January 2025: “Nigeria GDP growth”: https://tradingeconomics.com/nigeria/gdp-growth-annual

[2] Korefusion analysis, December 2024.

[3] Access to Finance, 21 March 2024: “Nigeria’s formal financial inclusion grows to 64%”: https://a2f.ng/nigerias-formal-financial-inclusion-grows-to-64-in-2023-says-efina-report/

[4] Trading Economics, accessed January 2025, “Borrowers From Commercial Banks by Country”: https://tradingeconomics.com/country-list/borrowers-from-commercial-banks-per-1-000-adults-wb-data.html

[5] KoreFusion internal analysis of figures from the World Bank and the Nigerian Monetary Governance Committee.