Why More Loans May Not Solve Nigeria’s Credit Problem

Nigeria’s credit market plays an important role in supporting economic participation, but how it fulfils that role matters as much as how far access expands. For millions of households and businesses, access to financing can determine whether they can meet an immediate obligation, take advantage of an opportunity or maintain some measure of financial stability. Yet, as demand for credit grows, lenders must pay closer attention to whether the financing they provide is sustainable for the people receiving it.

In Nigeria, where many households and businesses face pressure from rising living costs and limited access to affordable financing, the need for credit is evident. However, expanding access alone does not guarantee that borrowers will benefit from the loans they receive. The terms of the credit, the borrower’s ability to repay and the consequences of taking on additional debt are equally important.

At a recent press briefing at Moonshot, Victoria Arinze, Head of Product Marketing at Credit Direct, highlighted the importance of understanding why customers borrow and how much they can reasonably afford to repay. She referenced the company’s 2025 Nigeria’s Credit Landscape Report, which draws on data from approximately 300,000 customers. The report identifies rent, school fees and medical expenses as the three leading reasons customers take out loans. These findings illustrate how closely consumer borrowing can be tied to essential household needs.

A credit market cannot be considered successful simply because more people are borrowing. It must also consider whether those borrowers can meet their repayment obligations without compromising other essential financial needs.

A person may earn a regular salary and still have little disposable income after rent, school fees, existing loan repayments and other household expenses. Another person may have irregular earnings but demonstrate consistent income patterns over time. Looking at either person’s income in isolation would provide an incomplete picture. A more comprehensive assessment considers what remains after existing financial obligations have been met. This is why measures such as debt-to-income ratios, disposable income and repayment history are important to lending decisions.

Arinze explained that Credit Direct considers customers’ earnings alongside their existing obligations when assessing how much additional credit they can reasonably manage. The objective, she said, is to ensure that repayment commitments leave room for normal living expenses.

Technology has expanded the information available to lenders and created opportunities to assess borrowers more effectively. Credit Bureau records, salary information, transaction histories and other financial data can help build a more detailed picture of a customer’s financial behaviour. However, people working across multiple jobs, earning from freelance contracts or operating small businesses may not have the predictable monthly income associated with formal salaried employment. A rigid assessment model could overlook their ability to repay, while an overly permissive one could expose them to unsuitable debt. Lenders therefore need assessment systems that reflect the different ways people earn and manage money.

The need for a better understanding of borrowers also applies to small and medium-sized enterprises. A business seeking funds to fulfil a confirmed purchase order, for instance, has a different financing need from one seeking general-purpose working capital. The structure of the loan should reflect that difference, as should the assessment of the business’s ability to repay. This is an area where lenders must avoid applying a one-size-fits-all approach. Small businesses operate across different sectors and have varying revenue cycles. Some receive payments immediately, while others depend on invoices or contracts that may take time to settle. Their financing requirements and repayment capacities will therefore differ.

Arinze described Credit Direct’s SME lending portfolio, which includes general-purpose loans, invoice-backed financing and purchase order financing. She noted that Credit Direct offers loans depending on the product and the customer’s circumstances. She also explained that the company’s approach considers the nature of the business and the specific financing needs.

The wider lesson for the credit market is that lending products should be designed around the realities of the businesses and individuals they serve. Financing can help an enterprise take on new orders, manage operating expenses or pursue growth opportunities, but the terms must reflect the cash flow and repayment capacity of that business.

About Credit Direct

Credit Direct is building Africa’s leading embedded credit company by integrating credit into the supply chains and payment flows of partners, unlocking financial success for individuals and businesses. The company also provides retail investment solutions, expanding its role from access to credit to broader financial growth and wealth-building. Credit Direct has served millions of customers nationwide, including those historically underserved by traditional banking. Credit Direct is a wholly owned subsidiary of First City Monument Bank (FCMB) Group Plc.