Microfinance Banks Lead Lending Landscape
The Central Bank of Nigeria (CBN) has revealed that 95.66% of bank debtors in Nigeria borrowed from microfinance banks (MFBs) as of September 2024. This underscores the critical role MFBs play in providing credit access, particularly to individuals and small businesses.

Out of the 6,537 total debtors across all creditor types, 6,253 debtors were linked to MFBs. However, the number of borrowers from MFBs dropped by 26.4% year-on-year (YoY) from 8,500 in September 2023 to 6,253 in September 2024, reflecting a tightening credit market driven by rising interest rates.

Interest Rate Hikes and Their Impact
Under Governor Olayemi Cardoso, the CBN implemented six consecutive increases in the Monetary Policy Rate (MPR), elevating it from 18.75% in February 2024 to 27.50% by November 2024. These measures were introduced to curb inflation, which reached 34.80% in December 2024, but have led to higher borrowing costs, discouraging individuals and businesses from seeking loans.

Decline in Traditional Bank Lending
Traditional banks saw a steep decline in their lending activities. The number of debtors in deposit money banks (DMBs) fell by 68.9% YoY, from 498 in September 2023 to 155 in September 2024, reflecting the combined impact of stricter credit requirements and competition from alternative lenders, such as digital loan apps.

The Role of Digital Loan Apps
Digital loan applications are reshaping borrowing patterns in Nigeria, offering quick, collateral-free loans. Despite their popularity, these platforms face criticism for high interest rates, data privacy violations, and aggressive debt recovery tactics like public shaming.

The growing reliance on these platforms is partly driven by the rising cost of borrowing from regulated institutions, pushing some Nigerians towards riskier, unregulated options.

Borrowing Trends Across Debtor Categories

• Individuals: Remain the largest group of borrowers, accounting for 5,692 of 6,537 debtors in September 2024. This marks a 30.8% YoY decline, reflecting financial strain from higher borrowing costs and the appeal of alternative lenders.
• Small Businesses: Showed modest growth, with debtor numbers rising 6.8% YoY from 264 in September 2023 to 282 in September 2024, but experienced a 25.4% month-on-month (MoM) decline.
• Medium Businesses: Maintained relative stability, recording a 7.7% YoY increase from 444 in September 2023 to 478 in September 2024.
• Large Businesses: Declined significantly, with debtor numbers falling 40.7% YoY from 86 in September 2023 to 51 in September 2024.

Loan Values and Secured Transactions
The total value of loans across all debtor types stood at N118.73 billion in September 2024, a 4.2% YoY increase but a 12.8% MoM decline.

• Individuals: Loan values rose 57.5% YoY to N22.2 billion, reflecting continued reliance on credit despite high borrowing costs.
• Small Businesses: Secured loan values grew 68% YoY, from N3.08 billion to N5.18 billion, highlighting resilience in this category.
• Micro-Businesses: Declined 33.7% YoY, with loan values falling from N494.93 million to N328.22 million.
• Medium Businesses: Experienced a sharp MoM decline, with loan values dropping from N68.88 billion in August 2024 to N11.26 billion in September 2024.

Challenges and Market Dynamics

1. Rising Interest Rates: Elevated borrowing costs have reduced demand for credit across traditional financial institutions.
2. Digital Lenders: The accessibility of loan apps has drawn borrowers away from regulated institutions, despite concerns over unethical practices.
3. Economic Pressures: High inflation and a depreciating naira have increased financial strain on individuals and businesses.

Looking Ahead
As Nigeria’s credit landscape evolves, MFBs remain dominant but face increasing competition from digital lenders. To sustain their role, MFBs may need to adopt innovative solutions, such as digitizing services and offering more flexible loan terms.

Meanwhile, the CBN’s monetary policies and inflation-control measures will continue to shape borrowing trends, with potential implications for financial inclusion and economic stability.