Africa's MSME financing market reveals a staggering $331 billion annual funding gap, highlighting an urgent need for innovative credit solutions and collaborative efforts among stakeholders. This significant gap presents a lucrative opportunity for investors to support MSME lenders and drive sustainable economic growth across the continent. The challenge for investors lies in identifying companies with the competitive edge to become future market leaders.
This report comprehensively analyses MSME financing in Nigeria and Ghana, offering insights into these critical West African markets' competitive landscape and market dynamics. By examining market structure and concentration, investors gain a nuanced understanding of how MSME lenders operate and compete in each region. To highlight their competitive positioning, we profile significant players across various MSME lending provider categories, such as traditional banks, digital lenders, fintech firms, and microfinance institutions.
Additionally, we explore successful business models and discuss key factors shaping future competitive dynamics, including market advantages,
Ghana
Competitive landscape
Ghana's MSME financing landscape is undergoing a notable transformation, reflecting the nation's evolving economic dynamics and the increasing demand for accessible financial services tailored to MSMEs.
The image below illustrates the leading providers across Ghana’s landscape, from commercial banks to microfinance institutions, non-bank financial institutions and digital players.
Traditional banks dominate the high-value corporate lending space, while fintechs and MFIs are more active in the micro-lending segment.
GCB Bank, Ecobank, Absa Bank, and Standard Chartered remain critical players due to their extensive networks and established customer bases.
However, Ghanaian banks' MSME loan portfolios pale compared to their Nigerian and Kenyan peers. For instance, GCB Bank allocated $1.9 million in MSME loans in FY 2023, compared to Access Bank Nigeria’s $527 million in 2022 and Kenya’s KCB Bank’s annual average of $228 million between 2020 and 2023.
In response to the changing landscape, traditional banks in Ghana are increasingly seeking partnerships with fintech companies or network operators to embrace digital strategies. These collaborations often leverage the extensive reach of Ghana’s major mobile money platforms or card networks. Additionally, banks collaborate with fintech companies or other technology providers to access capabilities needed to digitise critical back-office operations such as loan underwriting.
Ecobank’s alliance with telecom giants like MTN Ghana and innovative digital credit underwriting platforms like Jumo exemplify this shift.
The Ecobank-Jumo collaboration is a proactive approach to extend the bank’s reach to previously underserved customer segments. By leveraging Jumo's advanced credit assessment algorithms and digital lending platforms, Ecobank enhances its loan underwriting processes, making them more efficient and responsive to customer needs.
Similarly, Absa Bank's collaboration with Mastercard to offer lower-rate credit cards to MSMEs, especially women, underscores the sector's ongoing digital transformation. Additionally, Fidelity Bank enters the digital arena by partnering with Proxtera, a Singaporean fintech, to develop a digital lending framework tailored for MSMEs
However, digital players like Zeepay and fintech companies like Fido and Pezesha are gradually contesting traditional banks' dominance.
These digital innovators leverage technology to offer more agile and customer-centric solutions. Although the size of their loans is much smaller compared to banks, they focus on unsecured lending to higher-risk micro and small enterprises—market segments that banks often overlook in favour of more structured medium enterprises capable of providing collateral.
Fido emerges as the market leader among digitally driven players. It is acclaimed for its pioneering use of alternative data for credit assessment. Though Fido operates a microfinance institution license, unlike most MFIs, it runs a digitally-led operating model.
As Solomon Agbemenya, former Head of Business Development at Fido, points out, Fido employs innovative methods to assess creditworthiness. Unlike conventional approaches that rely solely on transaction history, Fido integrates alternative sources such as social media activity and SMS records to compute customised credit scores for borrowers. This approach is particularly valuable given that leading credit bureaus like XDS Data and Dun & Bradstreet have limited historical data on MSMEs, who often lack formal credit histories.
Digital players often favour smartphone apps, which can introduce a bias given that many MSMEs in Ghana may find such apps complex to navigate. In contrast, semi-digital and hybrid models operated by MFIs and large telcos like MTN Ghana extensively use USSD platforms.
USSD codes are more straightforward and accessible for most MSMEs, especially those with limited digital literacy. However, a drawback of USSD is its limitation in supporting sophisticated applications, which can restrict lenders' functionality on the platform.
Microfinance institutions, such as Advans Ghana, ASA Savings and Loans, and Opportunity International Savings and Loans Limited, play a crucial role by focusing on the lower end of the market and providing smaller loan amounts to micro and small enterprises. Traditional MFIs often rely on manual operations for loan processes, ensuring a thorough assessment but potentially limiting reach.
However, a new generation of digitally-focused MFIs is emerging.
Letshego (formerly Afb Bank Ghana) exemplifies this convergence. In 2017, they partnered with MTN Ghana for Qwikloans, a digital lending product similar to Ecobank's offerings.
Ultimately, collaboration between MFIs and mobile network operators continues to expand financial inclusion for Ghanaian MSMEs.
Following the banking sector clean-up between 2017 and 2019, microfinance institutions in Ghana faced the challenge of adapting to stricter single-obligor limit regulations. As per these regulations, the single-obligor limits decreased significantly by 91%, from the previous limit of $22,000 to $2,000.
Consequently, these policy shifts compelled microfinance institutions to refocus their efforts on smaller microloans, necessitating higher interest rates to mitigate the margin pressure from their high operating cost models.
Furthermore, investors are likely to be vigilant about the prudential standing of MFIs, especially after UniCredit, a notably active MSME lender, had their operating license revoked by the Bank of Ghana in 2019 due to insolvency issues. Although this decision was later reversed in 2022, it highlights the importance of financial stability.
Overall, Ghana's MSME financing ecosystem features a range of entities employing different strategies and technologies to meet the evolving needs of MSMEs. Yet, amidst this diversity and innovation, investors must exercise caution and awareness of the risks and challenges inherent in effectively scaling MSME financing operations.
Market Success Strategies
Success in Ghana's burgeoning MSME financing arena hinges on navigating a challenging landscape adeptly. These hurdles range from forging strategic alliances to boosting financial literacy, combating cyber threats, addressing data privacy concerns, and diversifying product portfolios.
Strategic partnerships are pivotal in achieving market dominance, as evidenced by Ecobank's collaboration with MTN Ghana. Establishing a last-mile distribution network in Ghana's fragmented market is challenging and costly. However, the widespread adoption of mobile money wallets in Ghana positions mobile networks as invaluable last-mile distribution channels. Automatic deductions from user wallets further enhance loan recovery, streamlining repayments and significantly reducing default risks.
Financial literacy is paramount for improving loan repayment rates and bolstering business sustainability. Initiatives like Advans Ghana's financial education programs empower MSMEs to manage finances better, fostering responsible borrowing and positive business outcomes.
However, cybercrime looms as a threat, with fraudsters employing tactics like impersonation and fraudulent advertisements. Robust fraud prevention measures and heightened financial literacy efforts are imperative to safeguard users and uphold trust in digital lending.
Investors eyeing Ghana's MSME financing sector should prioritise companies excelling in technology, risk management, partnerships, financial literacy, and fraud protection. By addressing these critical areas, companies can navigate challenges and position themselves for sustainable growth and market leadership.
Market Outlook
The outlook for Ghana's MSME financing landscape is promising. Technological innovations, risk management, and partnerships will drive the sector's evolution as notable product innovations dominate.
Digitalisation and automation will prove pivotal in reshaping the MSME financing landscape, a sentiment echoed by Arnold Parker, former CEO of Letshego Ghana Savings and Loans Plc. This transformation is already underway, as evidenced by the emergence of startups like Kudigo and Oze. These platforms offer accounting services and optimise back-office operations for MSMEs while furnishing valuable data for credit scoring purposes. Consequently, this trend is poised to streamline processes, lower operational costs, and ultimately enhance financial accessibility for MSMEs.
Another significant trend is the emergence of sector-specific solutions. There is a notable gap in specialised MSME products in Ghana's market, and diversifying offerings, especially for longer-term, sector-specific solutions like agri-SME loans and inventory finance, presents a substantial opportunity for growth and innovation. This would cater to the unique needs of MSMEs in different sectors and enhance their competitiveness.
Crowdfunding and alternative lending models will also gain traction, providing MSMEs with more flexible and accessible financing options. Though regulatory frameworks are still evolving, crowdfunding platforms like Grow For Me connect investors with farmers. Alternative lending models, such as peer-to-peer lending and invoice financing, will also become more prevalent, enabling MSMEs to access financing tailored to their needs.
The regulatory landscape will also play a critical role in shaping the future of Ghana's MSME financing landscape. The Bank of Ghana is taking significant strides to make the regulatory landscape more fintech-friendly by setting up a dedicated fintech office and digitising application processes. This move will reduce the manual overhead burden for fintechs applying for licences, a significant entry barrier in other markets like Nigeria. This regulatory support will foster innovation and growth in the MSME financing sector, providing investors with opportunities to invest in companies well-positioned to capitalise on the sector's growth potential.
Ghana's MSME financing landscape presents promising opportunities for investors. Technological innovations, robust risk management strategies, and strategic partnerships are driving sector evolution, with a focus on diverse product offerings. Simple, user-friendly, back-office automation tools, sector-specific solutions, crowdfunding, and alternative lending models lead the growth wave. With regulatory frameworks becoming more fintech-friendly, investors have a prime opportunity to back companies poised for success in this dynamic environment.
Nigeria
Competitive landscape
Nigeria's MSME financing landscape has undergone significant transformations, particularly post-2019. Initially dominated by risk-averse banks focusing on large corporates with turnovers above ₦100 million, particularly in the oil and gas sector, the market has since seen a surge in fintech activity targeting underserved micro, small, and medium enterprises. Meanwhile, microfinance banks have continued their traditional focus on smaller-scale operations, primarily serving family-owned businesses in bustling marketplaces.
The image below illustrates the leading providers across Nigeria’s landscape, from commercial banks to traditional microfinance banks relying heavily on analogue operations and digital players, including fintechs with microfinance licenses operating lean digital-first operations and a ‘branch-light’ model.
The infographic above reveals that digital players outnumber commercial banks. However, the competitive landscape reveals a nuanced picture: The most prominent commercial bank MSME lenders command larger loan volumes despite their fewer numbers.
Banks' most significant selling point is their ability to offer higher loan amounts and lower interest rates. However, they face challenges such as lengthy paperwork, high collateral requirements, and high rejection rates. Traditionally, banks prefer lending to employees of blue-chip organisations with salary accounts, playing it safe in their lending practices. In contrast, fintech companies offer convenience through reduced paperwork and swift disbursement times, making them attractive to businesses with lower turnovers that banks often consider riskier.
As fintech customers grow and their turnovers surpass the ₦100 million mark, banks pose a significant competitive threat due to their extensive capital base and lower interest rates, according to Jide Osobajo, Head of Credit Risk and Business Operations at Aigle, an MSME lender. Consequently, fintechs are better off focusing on their niche market of smaller businesses, where they can avoid direct competition with banks and capitalise on their strengths in agility and customer-centric services.
To understand the scale of operations banks can deploy, consider Access Bank’s MSME loan portfolio, which stood at $527 million in 2022. This figure surpasses one of Kenya’s leading MSME bank lenders, KCB Bank, which averaged $228 million annually between 2020 and 2023.
Access Bank's aggressive expansion into MSME financing stands out among Nigerian Tier-1 commercial banks. Their ambitious plan to increase lending from 30,000 MSMEs in 2019 to 700,000 by 2024 highlights their unique position as a market creator. This expansion marks the highest commitment to MSME financing among commercial banks in Nigeria, showcasing their strategic focus on this sector.
Particularly, Access Bank has excelled in executing a digital-first strategy, as 95% of its MSME loans in 2022 were distributed digitally. If Access Bank’s strategy proves successful, it could spur more banks to enter the digital-led MSME financing space. This trend aligns with the current era where Tier 1 banks, like Access and GTB, are spinning off fintech arms to expand their revenue streams beyond traditional financial services.
Traditional microfinance banks such as Lapo Microfinance, Addosser Microfinance, AB Microfinance, and Baobab Microfinance Bank primarily focus on small-scale operations, serving family-owned businesses in busy marketplaces.
These microfinance banks benefit from substantial social capital due to their deep integration within local communities, which helps build crucial trust in a market where personal relationships and reputation are paramount.
Although their high-cost, heavily analogue operations result in very high interest rates, often surpassing those of fintechs, microfinance banks maintain a competitive edge through flexible repayment terms. By preserving borrowers' dignity in cases of default and showing a willingness to work with them to refinance loans, these banks have become a preferred choice for many small business owners.
Digital players in Nigeria's MSME financing landscape vary in their approaches. Some, like Renmoney, Lidya, and Fairmoney, focus on direct balance sheet lending. Others, such as Moniepoint, Opay, Carbon, Omniretail, TradeDepot, and Alerzo, inject liquidity into adjacent financial or retail marketplaces. In a market where few MSMEs have a transactional footprint, providing a networked platform that generates insights into their transactional patterns can be a winning strategy for targeting loans effectively.
For example, Moniepoint built a network of 2 million agents and businesses providing payment services before leveraging transaction data to offer lending products.
Similarly, B2B e-commerce platforms like Omniretail, TradeDepot, and Alerzo developed FMCG supply chain platforms to understand MSME activities before extending loan offers.
Digital players have an edge with quick turnaround times, minimal documentation, and no collateral requirements. However, the absence of collateral can also be a double-edged sword, as it increases the risk of default when serving high-risk groups. The challenge for these lenders is to balance the need for fast, easy loan disbursal with the necessity of some form of collateral, even if it's not as stringent as traditional banks require, to mitigate potential losses.
Nigeria's MSME financing landscape is evolving rapidly, with diverse players leveraging various strategies to meet the needs of different market segments. Traditional banks, microfinance banks, and digital players each bring unique strengths to the table, contributing to a more inclusive financial ecosystem.
Market Success Strategies
Nigeria’s market presents unique challenges that require sophisticated strategies to navigate. To succeed, players must address several critical hurdles: combating inflationary pressures, effective data management, balancing physical and digital operations, mitigating fraud, robust Know Your Customer (KYC) processes, and enhancing digital and financial literacy.
Investors interested in Nigeria's MSME financing space must prioritise the risks posed by inflation and high interest rates, as these factors significantly impact MSMEs' default rates..
Sectors such as agriculture and retail, especially for large-ticket items such as home furniture, automobiles, and electronics, are significantly affected by escalating food prices, energy, and import costs, making them particularly vulnerable. The Central Bank of Nigeria’s May interest rate hike to 26.25% aims to curb inflation and support the currency but may increase borrowing costs, further straining MSMEs. Given the high exposure of these sectors to inflationary pressures and the challenges posed by the current economic environment, investors should exercise caution and thoroughly assess sector-specific risks before making investment decisions.
Data management is another crucial element for effective lending decisions and minimising default risks. Despite the credit bureau’s progress in capturing more credit data and making their services more API-enabled, Nigeria’s credit information system remains underdeveloped, covering only 14% of the population. Regulation has also been slow to mandate non-bank financial institutions to share credit data with the credit bureaus.
Fintech lenders in Nigeria have gotten creative, supplementing traditional credit bureau data with alternative data sources. For instance, Social Lender has pioneered social media behavioural data, while others rely on SMS records. However, these sources are often less predictive than transaction-based data. Recognising this, Access Bank has aggressively utilised transaction activity on its mobile banking platform to profile businesses for loans, demonstrating the effectiveness of transaction data in assessing creditworthiness.
Lenders who can build ecosystems to monitor transaction velocity and accurately profile customers for loans will have a competitive edge. Moniepoint exemplifies this approach by leveraging sales data from its 800,000 POS devices, used by 2 million businesses, to profile merchants for credit. Similarly, OmniRetail’s embedded finance model tracks the sales velocity of its merchants, although scaling remains a challenge due to logistics and retail category considerations.
For those unable to integrate such models, companies like Carbon and Opay show that improved credit data and risk-based pricing can be achieved by issuing small loans to strategic MSMEs, thus building their credit profiles within their unique ecosystems.
Balancing physical and digital operations presents another strategic challenge. Fintechs such as Fairmoney, Lidya, Sycamore, and Renmoney have earned their reputation for innovative digital-first operations that cut costs and scale rapidly. However, Nigeria's fragmented, informal MSME landscape necessitates a blend of digital and physical operations, particularly to mitigate KYC and collections risks.
Digital-only methods are often insufficient for loan collections in Nigeria, given that most MSMEs operate offline. Consequently, innovative fintechs are beginning to adopt some strategies traditionally used by leading microfinance banks like Baobab MFB, Lapo MFB, Addosser MFB and AB MFB. For instance, fintechs are becoming more conservative in lending to MSMEs in high-conflict areas. They also require borrowers to submit signed cheques for their loan applications. This serves as collateral since a bounced cheque is a criminal offence in Nigeria, deterring borrowers from defaulting and forcing the lender to cash the cheque if they fail to repay.
For instance, Chioma Okotcha, co-founder of Payhippo, a former MSME lender that recently pivoted to climate finance, notes that some lenders are becoming more conservative in lending to MSMEs in high-conflict areas in the Northern parts of the country. Additionally, other lenders require borrowers to submit signed cheques as part of their loan applications. This practice serves as a form of collateral, as a bounced cheque is a criminal offence in Nigeria, thereby deterring borrowers from defaulting and enabling the lender to cash the cheque if repayment is not made.
Fraud remains pervasive in Nigeria’s MSME financing landscape, with fraudsters often posing as legitimate businesses and absconding with lenders’ funds. Official statistics frequently underestimate these incidents.
The significant threat of fraud in Nigeria’s financial landscape is underscored by high-profile cases, such as the reported ₦40 billion fraud at First Bank and the Central Bank of Nigeria's directive in April 2024 for major payment giants like Opay, Kuda, Palmpay, and Moniepoint to temporarily suspend customer onboarding. This directive came amid suspicions of these platforms being exploited by bad actors for illicit foreign transactions.
Banks, with their more sophisticated fraud prevention personnel, are generally better equipped to handle these challenges. In contrast, fintechs, in their quest for rapid growth, must ensure they integrate robust fraud prevention and compliance measures from the outset to safeguard their operations. This necessity is heightened by their exposure to high-risk customer segments and the increasing scrutiny from regulatory authorities.
Another underutilised component in Nigeria's MSME financing landscape is financial literacy. Despite its potential to drive MSME engagement and improve repayment behaviours, few Nigerian providers incorporate financial training into their offerings. In comparison, Kenyan peers like Tala have institutionalised financial training for MSMEs through programs like Gichenge, which focuses on providing comprehensive financial education to MSMEs, resulting in notable income growth and better loan repayment rates. Such initiatives underscore the importance of educating MSMEs to foster sustainable growth and ensure reliable loan repayment.
Investors eyeing Nigeria’s MSME financing market should focus on companies that excel in data management, balance physical and digital operations, implement robust fraud prevention, and incorporate financial literacy. These attributes enable businesses to navigate the unique challenges and capitalise on the opportunities within Nigeria’s dynamic landscape.
Market Outlook
Nigeria's MSME financing landscape stands at a crossroads, with potential for established players and innovative entrants. Four key trends are poised to reshape the market, presenting exciting opportunities for investors with foresight.
Firstly, the rise of non-bank players aggressively targeting the retail and FMCG (Fast-Moving Consumer Goods) sectors. These businesses, characterised by short sales cycles and high liquidity, offer a lucrative opportunity for lenders. Aigle, Credlance and PhastMoney are prime examples of capitalising on this underserved market.
However, unlocking this potential hinges on developing robust risk mitigation strategies. Inventory theft, a significant concern for cash-dependent businesses, necessitates innovative approaches. Investors should prioritise non-bank lenders demonstrating a solid grasp of these challenges and a clear path towards mitigating them. Potential solutions include leveraging big data and alternative credit scoring to assess borrowers and developing partnerships with insurance providers to safeguard against inventory risks.
Secondly, banks like Wema Bank, capitalising on their expertise in Banking-as-a-Service (BaaS) solutions, will carve out a niche by catering to "safer" growth-stage fintechs with established market traction, offering short-term loans or working capital solutions.
This targeted approach allows banks to leverage their existing infrastructure while mitigating risks associated with lending to smaller, less structured businesses. Investors seeking a foothold in this space should prioritise banks demonstrating a deep understanding of the fintech ecosystem and a proactive approach to fostering partnerships with promising startups.
Thirdly, the proliferation of critical infrastructure providers like Paystack’s payment gateway, Smile ID (KYC and identity), Prembly (regulatory compliance and fraud prevention), and Lendsqr (digital lending platform) highlights existing gaps in the lending infrastructure stack that can be addressed using advanced technologies like AI, machine learning, and blockchain. These providers are laying the infrastructure foundation to help lenders streamline operations and reduce costs. However, for some, their success is partly hindered by the underdeveloped state of public infrastructure assets, such as national identity databases, underscoring the need for public infrastructure improvements.
Lastly, the government is increasingly focused on financing underserved segments, evidenced by the Tinubu administration's establishment of Credicorp and student loan schemes. These policies reflect a favourable political stance towards lending, which could foster a positive regulatory environment. This support is crucial as businesses face high import costs, currency weakening, and historically high inflation, driving up credit demand.
In the broader economic context, inflation and high interest rates pose significant risks. Sectors such as agriculture and retail are particularly vulnerable due to escalating food prices and energy costs. Lenders expect to see rising defaults as strained MSMEs face higher borrowing costs. Given these pressures, investors must exercise caution and conduct thorough sector-specific risk assessments.
Nigeria’s MSME financing landscape presents promising opportunities despite the looming shadow of short to medium-term macroeconomic risks. By strategically focusing on these key trends while actively monitoring signs of economic improvement, investors can unlock the immense potential within Nigeria's dynamic MSME financing market.
