Open Banking Shifts Nigerian Lending from Collateral to Cash Flow for MSMEs

Nigeria’s open banking framework is shifting lending decisions from physical collateral to a business’s cash flow, potentially unlocking credit for millions of MSMEs that lack tangible assets but have steady transaction histories. While traditional lenders ask for audited statements, tax returns, and property or equipment as security, open banking allows permissioned access to account balances, transaction histories, and indebtedness directly from banks, enabling lenders to assess how quickly cash enters a business, its volatility, and recurring obligations.

The World Bank reported in December 2025 that only about one in 20 Nigerian MSMEs had bank credit, citing collateral requirements, short loan terms, and high costs. Initiatives such as the National Collateral Registry (operational since 2016) and the Secured Transactions in Movable Assets Act 2017 already let businesses use inventory, receivables, or equipment as collateral, but open banking takes this further by making commercial activity itself verifiable. A World Bank‑supported pilot with Access Bank and Sterling Bank moved credit assessment toward cash flow, describing early results as promising. The $500 million FINCLUDE programme, approved in December 2025, aims to bring 250,000 MSMEs into debt financing using an AI‑enabled platform for digitised loan appraisal.

Despite the promise, challenges remain. Businesses that rely mainly on cash generate less digital footprint, putting them at a disadvantage if lenders prioritize transaction data. Consent processes under CBN guidelines require explicit, revocable permission, yet owners may feel compelled to share data to access any funding. Critics warn that better data could also lead to stricter rejections based on perceived risk patterns, potentially widening the gap for informally operated firms. For open banking to truly expand access, lenders must use the technology to identify credit‑worthy startups currently overlooked and provide feedback on rejection reasons.

SOURCE: https://nairametrics.com/2026/09/13/open-banking-could-turn-your-business-cash-flow-into-collateral/