Unlocking Capital: Fintech's role in sustaining Nigeria's family businesses

April 23, 2024
4 min read

Nigeria's economic landscape thrives on the backbone of family-owned businesses. From corner shops to large enterprises, these businesses contribute a whopping $200 billion to the nation's GDP. But despite their significance, family businesses don’t get their shine in the spotlight, and they often face unique challenges, particularly around unlocking capital and financial management.

The prevalence of family businesses is not unique to Nigeria. They’re the cornerstone of the global economy. In India, for instance, they contribute around 79% to the GDP and roughly 60% of jobs. Reliance Industries is one such example, as its subsidiary, Jio Platforms, is the parent company to India’s largest telecommunications provider. 

Family businesses comprise 70% of the GDP in Spain and Mexico, while Italy, the UK, Portugal, and Canada's GDPs receive over 60% from the scores of enterprising family-owned businesses that operate in different industries. The data clearly points to the universal nature of family businesses and their importance to our economy. 

Interestingly, Moniepoint, one of Nigeria’s foremost financial services companies, launched a case study on the country’s family-owned businesses. The study uncovered insights into why they work so well, but some challenges caught the eye and are worth signposting. 


The hurdle of capital access

Credit is the oil that greases the economy. Securing funding for expansion and product diversification is important for every business. Loans have long been an important way of raising money to fund a business idea or expand an existing business. It allows companies to meet short-term obligations and build more long-term capacity. However, most businesses, especially informal, family owned ones do not have access to credit. 

A 2021 The Guardian news report citing the Credit Bureau Association of Nigeria (CBAN), states that only 4% of Nigeria's estimated 40 million micro, small and medium enterprises (MSMEs) have access to credit. This limited access to traditional financing creates a roadblock for family businesses, which form 60% of MSMEs - a huge quandary. 

It’s important to note that this is a challenge for both individuals and businesses. According to Nigeria’s National Bureau of Statistics, 70% of bank account holders lack access to credit. EFInA’s 2023 survey on financial inclusion gives further perspective, as just 6% of Nigerians had formal access to credit. 

Again, this issue is not unique to Nigeria, as 80% of India’s MSMEs do not have access to credit from formal financial institutions. The number stands at 60% for Brazil, and it’s a similar story across most developing economies. 

However, research from Moniepoint’s case study shows that most do not tend to take outside investments but would rather borrow money from family friends or, at best, take loans from cooperatives before formal financial institutions. Formal financial institutions can provide more support, but the difficulties of securing loans from traditional lenders often prevent these businesses from accessing the capital needed for expansion and growth.

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The reasons for this are not far-fetched. Small businesses often do not have enough collateral and are often deemed high-risk compared to large enterprises. 

Interestingly, another common challenge is effectively managing cash flow, which is one of the six causes of SME demise. While data specific to Nigerian family businesses is scarce, a 2022 KPMG report in Nigeria highlights the generally low technology adoption in most processes for MSMEs.  

Considering family-owned businesses heavily fall in the MSME bracket, they’ve experienced this lack of credit on a deep level. 

In the report, according to a source at a Big Four consulting firm, the issues surrounding getting loans have made several Nigerians wary of credit or debt. But innovative practices are helping to stem this tide. 

Can fintechs come in? 

The rise of financial technology companies worldwide is helping more people access financial services in new and interesting ways. So far, the focus has been on payments and basic banking services, but that trend is changing on the credit front. 

Between 2014 and 2019, researchers at Wharton University, McGill University, and the Paris School of Economics conducted a study that revealed an interesting insight. Once fintechs started borrowing SMEs, they witnessed a 20% increase in bank credit in six months. 

Indonesian eCommerce platform Tokopedia, created a credit scoring arm, Tokoscore, that increased the overall viability of credit in the country. This feature aided the use of Buy Now Pay Later services. 

In Nigeria, SME lending is on the rise. In September 2023, Moniepoint reported it disbursed $20 million worth of loans to businesses of all sizes. Moniepoint is one among a rising number of fintech companies providing much needed access to capital for Nigerian businesses. 

With rising inflation, Nigerian fintech companies providing working capital loans can help family-owned businesses adapt to diverse market conditions, maintain operations, and expand. Moniepoint’s case study shows this could be a valuable market as family businesses are structured to create strong cash flow. 

Fintechs that lend are not the only companies that make lending more viable. Fintech solutions that offer payment services and business banking accounts with features like expense cards and real-time transaction tracking are also in this gamut. They provide valuable insights into spending habits and help business owners make informed financial decisions. 

Interestingly, following the cash shortage of 2023, more family-owned businesses are embracing payment methods like cards and transfers. It leads us to be optimistic about the future of family-owned businesses. 

Are there other ways you think fintech and digital companies can help optimise the growth of Nigeria’s family owned businesses? We’d love to hear from you. Meanwhile, you can download a copy of Moniepoint’s Case Study on Family Businesses here

Got a tip? Our journalists are ready to dig deeper. Please share your insights and information and help us uncover the stories that matter.

I help Nigerian fintech companies understand consumers, acquire and retain paying users | Telling stories at Moniepoint, Techpoint Africa.
I help Nigerian fintech companies understand consumers, acquire and retain paying users | Telling stories at Moniepoint, Techpoint Africa.
I help Nigerian fintech companies understand consumers, acquire and retain paying users | Telling stories at Moniepoint, Techpoint Africa.

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