Despite a recent decline in inflation and a contraction in credit growth, Nigerian businesses continue to struggle to access affordable loans, according to a new analysis by financial experts. The paradox highlights the persistent structural challenges in the country's financial system, where tight monetary policy and risk aversion among lenders keep borrowing costs prohibitively high.
Inflation Drops but Borrowing Costs Remain High
Nigeria's headline inflation rate fell to 22.6% in June 2026, down from a peak of 28.9% in December 2025. However, the Central Bank of Nigeria (CBN) has maintained its benchmark interest rate at 27.5% since March 2026, keeping the cost of borrowing elevated. Commercial banks have passed on these high rates to customers, with average lending rates hovering around 30% for prime borrowers and exceeding 35% for small and medium enterprises (SMEs).
“The reduction in inflation is welcome, but it has not translated into lower borrowing costs for businesses because the CBN is still focused on taming inflationary pressures,” said Dr. Akinwumi Adesina, a Lagos-based economist. “Banks are also very risk-averse, demanding high collateral and charging premium rates to cover potential defaults.”
Credit Shrinks as Banks Tighten Lending
According to data from the National Bureau of Statistics (NBS), credit to the private sector contracted by 4.2% in the first half of 2026, compared to a 12% growth in the same period in 2025. The contraction is attributed to stricter lending standards and a rise in non-performing loans (NPLs), which hit 6.8% in March 2026, above the CBN's prudential limit of 5%.
“Banks are pulling back on lending because they are worried about the quality of their loan books,” explained Mrs. Folake Ogun, a banking analyst at Afrinvest West Africa. “The economic environment remains uncertain, and many businesses are struggling to repay existing debts.”
Impact on Businesses
The high cost and limited availability of credit are hampering business operations and investment. A survey by the Manufacturers Association of Nigeria (MAN) found that 72% of manufacturers cited access to affordable credit as their biggest challenge in the second quarter of 2026. Many firms have been forced to scale back expansion plans, delay capital expenditure, or rely on internal funding.
“We need loans to buy raw materials and upgrade equipment, but at 35% interest, it's just not viable,” said Chief Emeka Nwosu, owner of a small textile firm in Kano. “We are operating at half capacity because we cannot afford to borrow.”
Structural Issues Persist
Experts point to deeper structural problems that keep credit expensive and scarce. Nigeria's financial system is dominated by short-term deposits, making it difficult for banks to offer long-term loans. The lack of a robust credit bureau system also increases information asymmetry, forcing banks to charge higher rates to compensate for risk.
“We need to develop a more efficient credit infrastructure, including a functional credit registry and better bankruptcy laws,” said Dr. Adesina. “Without these, banks will always err on the side of caution.”
Policy Implications
The CBN has introduced several measures to boost lending, including a loan-to-deposit ratio policy and targeted intervention funds. However, these have had limited impact. Analysts argue that the central bank must balance its inflation-fighting stance with measures to support credit growth.
“The CBN needs to signal a clear path to lower interest rates once inflation is firmly under control,” said Mrs. Ogun. “In the meantime, the government should provide guarantees or subsidies to reduce the cost of borrowing for priority sectors.”
Until these issues are addressed, Nigerian businesses will continue to face a credit crunch, even as inflation moderates. The disconnect between macroeconomic indicators and the reality on the ground underscores the need for comprehensive reforms to unlock the country's economic potential.
