Access to credit has long been touted as the key to helping Nigeria’s micro and small enterprises (MSMEs) grow. Yet, according to the Moniepoint Informal Economy Report 2025, 51% of informal businesses now avoid borrowing altogether, up sharply from 30% in 2024
This steep decline in borrowing appetite marks a growing psychological and structural resistance to debt among Nigeria’s small business owners. The report attributes the shift to tighter lending conditions, high interest rates, and an unstable macroeconomic environment that make repayment feel riskier than ever.
Fear of Default Tops List
When asked why they avoid loans, 36% of respondents said they were afraid of being unable to repay. Another 26% said their businesses did not currently need loans, while 13% cited unfavourable interest rates or repayment terms. A smaller share — 11% — said they preferred to rely on personal savings or family funds.
This fear of default reflects both personal caution and systemic distrust. In an economy where shocks — from inflation to naira volatility — can erode profit margins overnight, many entrepreneurs see debt as a trap rather than an opportunity.
The Interest Rate Burden
High borrowing costs remain one of the biggest deterrents. Many informal businesses operate on daily turnovers of less than ₦20,000, making double-digit loan rates unsustainable. For many, the prospect of paying back loans with interest in a volatile currency market feels impossible.
The Moniepoint report notes that women-owned businesses, in particular, are more likely to avoid credit because of unfavourable interest rates and repayment fears
Why Entrepreneurs Prefer to Save Instead of Borrow
Interestingly, while Nigerians distrust credit, they continue to value saving. Nearly three out of four informal businesses (74%) say they actively save — even if informally — using cooperatives, digital banks, or simply keeping cash at home
This preference for savings over debt underscores a deep-seated cultural aversion to borrowing. Many entrepreneurs would rather grow slowly with their own funds than risk indebtedness to financial institutions they don’t fully trust.
Microfinance and Digital Lenders Fill the Gap — But with Limits
For the 18% of informal businesses that do take loans, digital lenders and microfinance banks are the most common sources of credit. Yet, only 6% of these businesses have ever received loans above ₦1 million
This suggests that while fintech and microfinance are improving access to smaller loans, large-scale credit remains out of reach for most informal operators. The result is a fragmented credit ecosystem: easy access to microloans for short-term needs, but little capital for true business expansion.
The Psychology of Debt Avoidance
Beyond economics, Moniepoint’s data reveals a psychology of caution shaped by past experiences with unreliable lenders, opaque contracts, and unstable income streams. Many informal traders equate borrowing with vulnerability — a loss of control over their business destiny.
Fear of public embarrassment, community pressure, and asset seizure all feed into this mindset. In a context where default carries social as well as financial consequences, debt avoidance becomes a rational survival strategy.
The Macroeconomic Backdrop — FX Instability and Inflation
Nigeria’s inflationary pressures and currency volatility further reinforce this aversion. When naira depreciation raises import costs and compresses profit margins, businesses find themselves struggling to predict future cash flows. The result: they prefer liquidity (savings) to leverage (loans).
For micro and small enterprises that depend on quick cash turnover, borrowing in an unstable economy feels like gambling.
What This Means for Policymakers and Fintechs
The findings from Moniepoint’s 2025 report carry a warning for financial inclusion advocates: credit access alone isn’t financial empowerment. To rebuild trust in borrowing, lenders must lower interest rates, simplify repayment processes, and offer flexible terms that reflect real-world business volatility.
Equally, digital lenders must focus on educating small business owners about responsible borrowing and demonstrating the benefits of manageable credit cycles.
Until then, Nigerian entrepreneurs will continue to rely on savings — not loans — to build their businesses, no matter how slow the growth.