Asher's Blog

When people discuss economic development, the conversation often begins with the largest companies. We talk about the banks, telecommunications companies, refineries, manufacturers and technology companies that raise substantial capital and employ thousands of people. These businesses matter enormously, but they are not where most people encounter the economy every day.

The economy most people experience is the pharmacy nearby, the logistics company moving goods between cities, the private school employing teachers, the restaurant buying from local suppliers, the manufacturer with forty workers and the professional-services firm trying to make payroll every month. Small businesses sit inside communities, employ people who may never work for a multinational company and convert local knowledge into products and services that larger organisations may not be able to provide efficiently.

Small businesses are not a peripheral part of the economy waiting to become important when they grow. They are the real economy because they are the fabric through which work, income, services and opportunity reach much of society.

The United States illustrates the scale of that role, although the correct numbers are even more striking than the figure people commonly repeat. According to the U.S. Small Business Administration’s 2025 profile, small businesses represented 99.9 per cent of American businesses and employed 62.3 million people, or 45.9 per cent of employees. This does not mean that every small business is highly productive or destined to become a large corporation. It means that a developed economy still depends on an enormous population of relatively small firms.

Nigeria also has millions of micro, small and medium enterprises, but the more important question is not how many exist. It is how many are becoming more productive, more durable and capable of employing more people at better wages. An economy does not become prosperous simply by having many subsistence businesses. It becomes stronger when those businesses can accumulate capital, adopt technology, build management capacity and grow beyond the founder’s daily labour.

Our strategy should therefore not be limited to helping people start businesses. We need to help more small businesses become good businesses.

We need a definition that encourages growth

Before designing incentives, we need to be clear about what we mean by a small business. Definitions matter because they determine which companies qualify for credit programmes, tax relief, procurement preferences, grants and technical assistance.

Nigeria’s official MSME surveys have generally classified enterprises using employment and asset measures. The 2017 National Bureau of Statistics and SMEDAN survey covered enterprises with fewer than 200 employees and estimated that Nigeria had more than 41.5 million MSMEs, of which micro enterprises represented the overwhelming majority. The age of that survey means we should be careful about treating the total as a current count, but its structure exposes an enduring issue: Nigeria has a huge number of very small enterprises and a much thinner population of firms that have crossed into sustained institutional growth.

One proposal could be to define a small business by annual revenue, perhaps using a threshold such as $5 million or $10 million. I understand the intention behind this. A definition generous enough to include substantial businesses would communicate that a company does not stop deserving support as soon as it begins to succeed. It could encourage founders to think beyond survival and build towards meaningful scale.

However, a fixed dollar threshold would be difficult in Nigeria because exchange-rate movements could reclassify a company even when nothing changed in its actual operations. Revenue alone can also be misleading. A commodity trader may record high turnover with a very small margin and few employees, while a software company may create greater value with lower revenue and a smaller asset base.

A better definition would combine employment, turnover and assets, with thresholds expressed in naira and reviewed regularly for inflation. It may also need sector-specific adjustments because capital requirements and margins differ across manufacturing, retail, agriculture, technology and professional services. A company should be classified according to the measure that best reflects its economic substance rather than whichever figure allows it to obtain a benefit.

The system should also distinguish between micro businesses, small businesses and growth-stage medium enterprises. A trader employing two people does not need the same product, financing structure or regulatory treatment as a manufacturer employing 150 people. When every non-large company is placed inside the same category, support becomes too generic to help anyone properly.

Most importantly, the definition should not create a cliff that punishes growth. If a company immediately loses every benefit when it hires one additional person or crosses a turnover threshold, the policy may encourage it to remain small, split operations artificially or hide revenue. Support should taper gradually, allowing the company to graduate into the next category rather than fall off an edge.

Credit is the constraint we must learn to break

One of the greatest barriers facing small businesses in Nigeria and across Africa is credit. Many capable founders can identify demand, sell a product and operate responsibly, but they cannot obtain the capital required to buy equipment, hold inventory, complete a contract or survive the period between delivering work and receiving payment.

I once saw an advertisement for a federal-government-backed credit facility and went to ask about it. I was told that a borrower needed collateral equal to the amount being requested. I understand why a lender wants protection, especially in an environment where information is limited and recovering a bad loan can be slow. However, a programme designed to expand access to credit does very little for the underserved entrepreneur if the entrepreneur must already own liquid assets equal to the loan.

Traditional collateral-based lending works best for people who already have wealth. A business with land, buildings or financial assets can pledge them and obtain more capital. A young company whose principal assets are contracts, transaction history, equipment, software, customer relationships and the founder’s ability to execute may remain excluded even when its underlying business is sound.

The solution is not to demand that banks lend irresponsibly. Depositors’ money must be protected, and loans that cannot be repaid will eventually damage the same economy we are trying to support. The task is to improve how risk is understood, priced and shared so that physical property is not the only evidence of creditworthiness.

Credit begins with trustworthy information

To unleash credit, we first need to create a stronger culture and infrastructure of trust. A lender should be able to see how money enters and leaves a business, whether taxes and salaries are paid, how stable its customers are, which obligations already exist and whether the owners have honoured previous commitments. The more reliable this information becomes, the less the lender has to depend solely on land or cash collateral.

Digital payments, payroll records, electronic invoices, tax filings, bank transactions and verified contracts can become the raw material for cash-flow-based lending. A small business that has received predictable customer payments for three years should be able to use that history to demonstrate capacity. A supplier holding an accepted invoice from a credible buyer should be able to finance the waiting period before payment. A company with a confirmed purchase order should be able to obtain working capital to fulfil it, provided the lender can verify the transaction and control how the proceeds are applied.

This is where technology companies can make a profound contribution. They can organise fragmented records into a credible financial identity for the business, detect manipulation, monitor performance and help lenders price risk more accurately. The entrepreneur benefits from access to capital, while the lender gains better visibility than a one-time collateral valuation can provide.

Government can strengthen the system through partial credit guarantees, but those guarantees must be designed carefully. If government absorbs all the loss, lenders may approve poor loans because they are no longer exposed to the consequences. If lenders retain meaningful risk while government covers a defined portion, both sides have an incentive to select and monitor borrowers responsibly.

Movable-asset finance should also become easier. Equipment, vehicles, inventory, receivables and other business assets can support lending when ownership is clear and security interests can be registered and enforced. A company should not need to own a house before it can finance the machine that will increase production.

Repayment capacity matters more than distributing money

Public credit programmes are often announced by the total amount of money allocated, but the real measure should be what happened to the businesses that received it. Did they increase revenue, employ more people, survive longer and repay the facility? Did the lender learn enough to finance the next group without another government programme?

Cheap capital without assessment, monitoring and business support can become a grant disguised as a loan. Excessively restrictive capital, on the other hand, is announced as support but never reaches the people for whom it was intended. A useful credit system must sit between these extremes.

Different businesses also require different forms of capital. A retailer purchasing inventory may need a short revolving facility. A manufacturer buying machinery may need several years to repay. A contractor waiting for a large customer to settle an invoice may need receivables financing. A software business investing in product development may be better suited to equity than a bank loan with immediate monthly repayments.

We should stop treating “funding for SMEs” as one product. The capital must match the business cycle, and repayment should come from the activity being financed rather than from the founder constantly looking for another source of money.

Large businesses should help create stronger small businesses

Government is not the only institution capable of supporting small-business growth. Large companies can transform the ecosystem through how they manage suppliers, distribute contracts and pay invoices.

A large business that takes 120 days to pay a small supplier is effectively borrowing from a company with less access to capital. The supplier must finance wages, inventory and taxes while waiting for an organisation with a stronger balance sheet to honour its obligation. Faster and more predictable payment may be more valuable than another entrepreneurship seminar.

Large companies can also divide appropriate contracts into sizes that qualified smaller suppliers can fulfil, publish clear procurement standards and help promising vendors improve quality, safety, accounting and compliance. This should not mean awarding contracts to unqualified companies for political reasons. It means using the purchasing power of large institutions to build a deeper base of competent local suppliers.

Banks, telecommunications companies, manufacturers and major technology platforms already sit on valuable information about small-business activity. With consent and appropriate data protection, they can help entrepreneurs convert that activity into credibility. A distributor’s sales history, a merchant’s payment record or an employer’s payroll behaviour can become evidence that supports insurance, credit and better commercial terms.

The strongest small-business policy may therefore be an ecosystem in which large companies are rewarded for developing suppliers, paying them promptly and creating pathways through which capable firms can graduate into larger contracts.

Small businesses need infrastructure more than inspiration

Entrepreneurs should be ambitious, disciplined and willing to learn, but motivation cannot compensate for an environment that makes productive work unnecessarily expensive. Small businesses need reliable power, transport, broadband, payment systems and enforceable contracts because they cannot build private substitutes as easily as large companies can.

A major company may purchase generators, employ security personnel, retain lawyers and build its own distribution network. A small company pays a much higher proportion of its revenue for the same protections or operates without them. Public failure therefore acts like a regressive tax: the smaller the business, the more damaging the inefficiency can become.

Regulation should also be proportionate. A small firm should not face the same complexity as a large financial institution, although it should still meet standards relating to safety, employees, customers and taxes. Government can simplify registration, consolidate filings, digitise payments and create clear regulatory pathways that allow a business to become formal without being overwhelmed by the cost of formality.

Formalisation must offer benefits. If a business registers, keeps records and pays taxes, it should gain easier access to credit, procurement opportunities, insurance, legal protection and government services. When formality produces only more bills and inspections, businesses will rationally remain invisible.

We should measure whether small businesses are becoming stronger

A serious national strategy should track more than the number of businesses registered or loans announced. We should measure how many firms move from micro to small, from small to medium and from medium to large. We should track survival, productivity, wages, exports, tax contribution, access to credit and the time large customers take to pay smaller suppliers.

We should also make it easier for a healthy small business to be acquired, merged or transferred. Not every founder needs to build a multinational corporation, and not every successful company must remain under its original owner forever. A functioning market for business ownership allows founders to realise value and gives capable operators the opportunity to continue what has been built.

This creates a more ambitious definition of success. The goal is not to preserve every small business at its current size. The goal is to create conditions in which good businesses can become more productive, employ more people, generate wealth for their owners and either grow independently or become valuable parts of larger organisations.

Prosperity will be built through millions of stronger firms

Small businesses are the real economy because they connect national policy to household life. When they grow, people find jobs closer to their communities, suppliers gain customers, families receive income and local problems receive practical solutions. When they remain fragile, the entire economy becomes fragile, no matter how impressive its largest corporations appear.

Nigeria does not need only more entrepreneurship campaigns. It needs a deliberate small-business strategy built around credible definitions, better information, cash-flow-based credit, partial guarantees, movable collateral, faster payments, proportionate regulation and infrastructure that reduces the cost of productive work.

Credit is central to this strategy, but credit ultimately rests on trust. Businesses must keep records and honour obligations. Lenders must develop the ability to understand operating businesses rather than ask only for property. Government must enforce contracts and share risk without rewarding carelessness. Large companies must stop using smaller suppliers as involuntary sources of working capital.

If we get these things right, we will not merely create more businesses. We will create stronger businesses that can survive, grow and support the prosperity of the communities around them.

That is how the real economy becomes a prosperous one.

References and further reading

• U.S. Small Business Administration, Office of Advocacy, 2025 Small Business Profile.
• National Bureau of Statistics and Small and Medium Enterprises Development Agency of Nigeria, National Survey of Micro, Small and Medium Enterprises, 2017.
• Central Bank of Nigeria, development-finance programmes for micro, small and medium enterprises.