Law, credit risk management and bank lending to SMEs in Nigeria

Abstract

This article emphasises that a variety of constraints – chief of which is inaccessibility to funds – substantially prevent what should be the profound contribution of small and medium enterprises (SMEs) to the economic growth and development of nations, including Nigeria. It further identifies the high credit risk involved in lending to SMEs by Nigerian banks as the main rationale for the banks’ unwillingness to grant credit to SMEs, and observes that this aversion on the part of Nigerian banks is notwithstanding the enormous mechanisms provided by Nigerian law to minimise credit risks for banks. The article concludes with a counsel to Nigerian banks to avail themselves of the credit risk-minimising strategies of Nigerian law, which should then motivate them to improve on their record regarding advances to SMEs.