For many of Nigeria’s 40 million Micro, Small, and Medium Enterprises (MSMEs), the biggest hurdle is not ambition or innovation—it is access to finance. Banks and investors often hesitate to lend because they do not have enough reliable information about a business’s finances or operations. Even small businesses with strong potential struggle to convince lenders they are a safe bet.

Reducing Information Gaps for SMEs and Lenders

A key barrier to SME financing in Nigeria is information asymmetry. Banks and investors often hesitate to lend because of perceived risks, incomplete records, or inconsistent financial data. The Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) addresses this challenge through initiatives such as the Inspire–Create–Start–Scale (ICSS) programme, which helps SMEs formalise their operations, improve record-keeping, and strengthen business credibility.

Facilitating Loan Access Through Partnerships

SMEDAN has also facilitated direct access to finance through strategic partnerships. For instance, in collaboration with Sterling Bank, SMEDAN supports ₦5 billion in loans at a single-digit 9% interest rate for small businesses. To access this facility, SMEs must be registered with SMEDAN and meet documentation requirements. Loan amounts range from ₦250,000 to ₦2,500,000, with repayment starting after a three-month grace period.

This approach demonstrates how SMEDAN leverages business formalisation and structured assessments as practical credit-enabling mechanisms. By meeting eligibility criteria and maintaining proper records, SMEs signal credibility to lenders and unlock funding that might otherwise have been inaccessible.

Global Evidence: Grading Works

The benefits of structured assessment are not just theory. A World Bank Group survey on SME gradings (IFC, 2024) found that grading programs worldwide:

• Help businesses secure credit more easily.
• Increase the amount of funding received.
• Strengthen financial reporting and record-keeping.
• Support export opportunities and operational improvements.

By translating operational and financial information into a credible, standardised signal, SMEDAN is applying these lessons in Nigeria, helping lenders understand risk more accurately and confidently.

The Bigger Picture

Imagine a small tech startup in Lagos or a family-owned food business in Kano: by registering with SMEDAN, improving their financial records, and participating in credit assessments, they can go from being overlooked by banks to being eligible for affordable loans, while also learning how to run their business more efficiently.

A standardised credit scoring system for SMEs in Nigeria could further reduce information gaps, improve risk assessment, and unlock more funding, allowing more businesses to grow, hire staff, and expand operations.

Leveraging Credit Signals to Expand SME Finance

SMEDAN’s initiatives demonstrate how credit rating principles can be leveraged as a practical financing tool. By formalising MSMEs, improving the quality of financial and operational data, and embedding structured assessment within its ecosystem, the agency helps translate SME activity into credible signals that can assist rating agencies in assessing and rating SMEs.

In essence, SMEDAN’s initiatives can encourage the broader participation of Nigerian SMEs in credit rating, creating a pipeline of businesses that are visible, credible, and better positioned to access funding. This approach strengthens credit access, improves risk pricing, and lays the foundation for a more inclusive and sustainable SME financing ecosystem.