…raises concerns over household spending, manufacturing growth, jobs
Nigeria’s consumer credit market contracted by N939 billion in 2025 as high interest rates, tighter lending conditions and elevated credit risks made it harder and less attractive for households to borrow, raising concerns over consumer spending and the broader economic outlook.
Muda Yusuf, chief executive officer of the Centre for the Promotion of Private Enterprise (CPPE), said the decline reflected a financial system that remains poorly structured for mass-market consumer lending, with banks particularly reluctant to extend credit to individuals who lack formal incomes, collateral or easily traceable repayment capacity.
“It’s not that Nigerians don’t like borrowing; it’s the financial system that is not encouraging people to borrow,” Yusuf told BusinessDay.
According to the Central Bank of Nigeria (CBN), consumer credit outstanding fell 19.89 percent to N3.783 trillion in 2025 from N4.722 trillion in the preceding year. The decline was the first since December 2019.
The CBN said the contraction occurred in response to the prevailing high interest-rate environment. By category, personal loans fell 115.46 percent to N1.847 trillion, driving the overall decline in consumer credit.
Retail loans moved in the opposite direction, rising 63.77 percent to N1.935 trillion and accounting for 51.16 percent of total consumer credit, overtaking personal loans for the first time in a long period. As a share of credit to the private sector by other deposit-taking corporations, consumer credit fell to 6.60 percent in 2025 from 7.98 percent in 2024.
Yusuf said the structure of Nigeria’s financial system means formal salary earners whose incomes are paid directly into bank accounts have a better chance of obtaining consumer loans than the wider population.
He said banks remain concerned about the ability to trace and recover loans from borrowers without stable, documented incomes, while the conditions attached to credit further exclude many potential borrowers.
Yusuf said the weakness in consumer credit has consequences beyond household borrowing because manufacturers and retailers depend on consumer purchasing power to sell their products.
He explained that when households spend more of their income on essentials such as food, healthcare, transportation and education, less is available for discretionary purchases such as furniture, electronics, cosmetics, clothing and vehicles. Consumer credit can help bridge that gap by allowing people to purchase goods and repay over time, he noted.
“There is a direct nexus between consumer credit, investment, economic growth, and job creation,” Yusuf said.
He said stronger consumer lending would allow manufacturers to sell more, increase turnover and profitability, and subsequently invest and employ more workers. Without access to affordable credit, however, aggregate demand remains weak.
Yusuf said the government could strengthen the Nigerian Consumer Credit Corporation (CrediCorp) by creating wider lending channels through banks and microfinance institutions rather than relying solely on conventional bank lending.
He also advocated government-backed credit guarantees to reduce lenders’ exposure to default risk. Such guarantees, he said, would give financial institutions greater confidence to extend loans to consumers and small businesses.
The decline in consumer credit comes despite government efforts to deepen access to finance and develop a more institutional consumer-credit market. Yusuf said the challenge was ensuring that those initiatives were structured in a way that reaches consumers who are currently excluded from formal lending.
The squeeze has also left consumer credit as a relatively small part of Nigeria’s financial system.
Yusuf estimates that consumer lending accounts for barely two percent of total banking credit, far below developed economies where credit cards, mortgages and other forms of household finance play a major role in supporting consumption.
He said individual borrowing rates hovering around 35 percent further discourage consumers from taking loans, even when facilities are available. Fintech lenders have helped fill part of the gap, but their high charges and aggressive collection practices have created additional concerns.
The competing pressures leave policymakers with a difficult balance of maintaining tight monetary conditions to contain inflation and restore macroeconomic stability while ensuring that borrowing costs do not become so high that households and businesses are priced out of credit.
Kabir Isah, an Abuja-based economist, said the decline in consumer credit also reflected the deterioration in consumers’ real incomes and the rising risk of non-performing loans confronting banks and fintech lenders.
Higher interest rates increase monthly repayment obligations, he said, meaning applicants who might previously have met standard debt-to-income requirements can now fail automated loan assessments, and that lenders have consequently tightened their risk-acceptance criteria.
The impact is extending into Nigeria’s retail sector, where distributors and retailers face double-digit borrowing costs for working-capital loans used to finance inventory.
Isah said businesses were responding by reducing stock orders, seeking faster payment terms from suppliers and prioritising cheaper products to preserve cash and minimise the risk of unsold inventory.
“Weakened consumer purchasing power has driven retailers to restructure their inventory, focusing heavily on single-use, low-cost pack sizes and favouring domestic products over imported consumer goods,” he said.
According to him, credit providers are also reducing unsecured salary advances and overdraft facilities while directing more funds into government securities, including Treasury Bills, which offer attractive returns with lower default risk than lending to individual consumers.
Isah said small businesses were particularly exposed because high cash reserve requirement benchmarks and volatile risk profiles have encouraged banks to shift liquidity away from small and medium-sized enterprises towards sovereign debt.
Samson Simon, chief economist at Arkk Economics & Data Ltd, said Nigeria remains overwhelmingly a cash-and-carry economy compared with advanced markets where mortgages, auto loans and retail finance are embedded in everyday transactions.
From mobile phones and electronics to vehicles and houses, Simon said Nigerians largely depend on accumulated savings and out-of-pocket payments rather than borrowing to finance purchases.
“Our consumer credit system is underdeveloped,” Simon said, adding that even the limited progress made in consumer borrowing appeared to be reversing.
He said a reduction in borrowing was ultimately a sign of weaker spending, which could become a drag on economic activity as businesses depend on household demand for their products and services.
Simon noted that a 20 percent contraction in consumer credit in a developed economy could generate significant economic shockwaves. In Nigeria, the immediate systemic impact is cushioned by the relatively small size of the consumer-credit market, but he said the trend remained a warning signal for the CBN and the wider economy.
Mayowa Amoo, founder of QLP Capital and a financial analyst, said Nigeria’s low consumer-credit penetration was driven by both high borrowing costs and a longstanding preference among consumers to own goods outright rather than finance them through debt.
“We don’t have a credit culture, generally, especially for consumption,” Amoo said.
He said the cost differential between corporate and individual borrowing further discourages consumers. While large companies can secure loans at rates around 15 percent, individuals can face rates above 30 percent, making consumer credit prohibitively expensive for many households.
Amoo also linked the decline in vehicle financing to policy changes in 2025, including higher import duties introduced as part of efforts to encourage local vehicle assembly.
However, he expects consumer credit to recover in 2026 as banking-sector recapitalisation increases lending capacity and policy interventions improve access to mortgages and vehicle financing.
He pointed to a mortgage arrangement involving the Mortgage Refinance Company and asset managers such as ARM that could allow commercial banks to offer mortgages at single-digit or low double-digit rates of around 10 percent.
Recent reductions in vehicle import duties could also encourage more auto financing, while stronger bank balance sheets following recapitalisation could provide additional liquidity for consumer lending.
Amoo said these developments could lead to a higher proportion of bank credit flowing to households this year.
