Financing Nigerian SMEs in the Age of Digital Disruption

Folalumi Alaran

Nigeria’s small and medium enterprises form the backbone of the economy, contributing nearly half of GDP and employing more than 80 percent of the workforce. Yet for decades they have been trapped in a paradox: vital to economic growth but excluded from the formal credit system. Out of over 39 million SMEs in the country, fewer than 5 percent have access to structured financing. For most, survival depends on personal savings, informal lending, and daily cash flow.

Now digital disruption is rewriting the rules. From mobile money to artificial intelligence, new platforms are unlocking credit pathways once thought impossible. But as Nigerian banks rush to embrace digital solutions, experts warn that technology alone will not deliver financial inclusion. Governance, discipline, and leadership must guide innovation to ensure that SME financing expands sustainably rather than recklessly.

In an interview, banking and credit risk expert Mobolaji Olalekan Komolafe explained how the intersection of digital innovation and SME lending is transforming Nigerian finance. “Technology has opened a gateway,” he said. “We can now see into cash flows, transactions, and behavior in ways that were unimaginable just a decade ago. But the challenge is not adopting technology for its own sake—it is integrating it into lending models that protect both banks and SMEs.”

The opportunity is vast. Mobile money penetration has surged, with more than 15 million Nigerians using mobile wallets in 2021. Fintech platforms are gathering rich transaction histories from millions of informal businesses. Artificial intelligence tools are analyzing everything from phone airtime usage to point-of-sale data to create credit scores for the unbanked. In theory, these tools could bridge the yawning credit gap and channel billions into the SME sector.

Yet Komolafe cautioned that the risks are equally real. “Rapid onboarding and algorithm-driven approvals can mask vulnerabilities. If governance is weak, you can approve loans at speed but also accumulate defaults at scale,” he noted. “Digital disruption does not erase credit risk—it reshapes it.”
He believes the solution lies in hybrid lending models, blending digital insights with traditional due diligence. Under his leadership, pilot projects introduced automated credit reviews that cut approval timelines from weeks to days while embedding rigorous governance checks. “The goal is balance,” he explained. “You cannot sacrifice discipline for speed. But you also cannot remain stuck in outdated manual systems. A hybrid approach delivers both.”

Automation, in his view, is not simply about efficiency. It is about consistency and accountability. “When we automated covenant tracking, risk rating, and compliance workflows, we reduced human bias and caught early warning signs faster,” Komolafe said. “In Nigeria’s regulatory environment, where lapses attract heavy penalties, automation became not just a productivity tool but a shield.”

Global data supports his point. According to McKinsey’s 2020 Africa Banking Review, automation can reduce credit processing costs by up to 30 percent while improving risk prediction accuracy by 20 percent. For Nigerian banks, where non-performing loan ratios have hovered around 6–9 percent in recent years, these improvements could translate into billions of naira in preserved capital.

But Komolafe is quick to emphasize that people—not just systems—remain decisive. “Digital tools can highlight patterns, but analysts must interpret them,” he explained. “A credit score based on mobile usage might suggest repayment ability, but only trained teams can judge if that behavior is sustainable or distorted. Leadership in the digital age means building teams who are digitally literate and risk-aware.” He has invested heavily in training analysts, preparing them to interpret algorithm-driven credit signals and to manage emerging risks like cybersecurity threats.

The SME sector itself highlights the need for discernment. Nigeria’s retailers, traders, and informal manufacturers now generate terabytes of digital data. But the volatility of these sectors—seasonal cash flows, exposure to currency shocks, reliance on fragile supply chains—requires judgment that goes beyond numbers. “If you lend blindly to SMEs on the back of transaction data alone, you risk exposure when shocks hit,” Komolafe warned. “You need both the data and the context.”

This approach has begun to win international attention. In 2021, several Nigerian banks attracted new credit lines from development finance institutions specifically because of their investment in digital governance. Lenders saw that automation and training programs reduced operational risk, reassured regulators, and positioned banks as credible partners in expanding SME financing.

The promise of fintech collaboration is another frontier. Digital lenders have scaled quickly, but many lack the balance sheets or regulatory oversight of banks. Partnerships that combine fintech agility with bank governance are beginning to emerge. Komolafe views this as essential: “Banks cannot pretend fintechs do not exist. But fingers also cannot scale responsibly without governance. Collaboration is the only sustainable path.”

Still, challenges remain. Cyber fraud is rising, with the Central Bank reporting more than 19,000 cases of electronic fraud in the first half of 2020 alone. Many SMEs lack the digital literacy to protect themselves, exposing banks to indirect risks. And regulatory frameworks are still catching up to the speed of innovation. For Komolafe, this makes leadership even more critical. “Technology alone will not save us,” he said. “We need leaders who embed governance into digital strategy, who train teams continuously, and who view compliance as an enabler, not a barrier.”

The larger context is Nigeria’s drive for economic diversification. With oil revenues under pressure, the government has positioned SMEs as the engine of growth. The 2020 MSME survey showed that SMEs accounted for 96 percent of businesses in Nigeria, yet less than 5 percent of them accessed formal loans. Closing this gap is not just a financial priority but a national one.

Komolafe’s conclusion is both pragmatic and urgent. “Digital disruption offers SMEs a gateway to credit inclusion,” he said. “But for banks, growth must be balanced with governance. Only by blending automation, leadership, and structured risk frameworks can Nigerian banks unlock SME potential without sacrificing stability. The cost of getting this wrong is too high—not just for banks, but for the entire economy.”

The digital age has redrawn the map of opportunity for Nigeria’s SMEs. Whether it becomes a story of inclusion or instability depends on whether banks heed voices like Komolafe’s—voices that remind the sector that technology is powerful, but governance is indispensable.