The Problem: A $32B Trust Deficit
The $32B Financing Gap
Nigeria’s economy presents a striking contradiction. The nation hosts approximately 40 million micro, small, and medium enterprises that collectively contribute 58% to national GDP and represent 96% of all registered businesses. Despite this economic significance, these enterprises remain systematically excluded from formal financial services. Traditional banks classify MSMEs as “high risk” borrowers, viewing the sector through frameworks designed for large corporations with audited financials, established credit histories, and physical assets for collateral.
This mismatch between economic importance and financial access creates a documented financing gap of $32.2 billion according to World Bank assessments. The gap represents not merely unavailable capital, but rather a trust deficit—investors and financial institutions cannot adequately assess the creditworthiness of businesses that operate largely in informal or cash-based environments.
Predatory Lending Ecosystem
The formal banking sector’s unwillingness to serve MSMEs creates vacuum conditions that predatory lenders eagerly fill. Informal cooperatives, loan sharks, and unlicensed microfinance operations charge interest rates exceeding 50% annually, with some reaching 100% or higher. These extractive models view borrowers as resources to exploit rather than partners to grow.
Entrepreneurs accepting these terms do so from desperation rather than choice. A market vendor needs ₦200,000 to stock inventory for high-demand periods but cannot access formal banking. She turns to a local lender charging 10% monthly interest (120% annually), understanding that missing a single payment could result in losing her stall, accumulated inventory, or community standing.
The Collateral Barrier
Traditional lending frameworks require physical collateral—land certificates, vehicle titles, commercial property deeds, or other tangible assets that lenders can seize and liquidate upon borrower default. This requirement systematically excludes youth entrepreneurs and informal economy participants who lack inherited wealth or property ownership.
A talented 25-year-old with fashion design skills, business acumen, and proven ability to sell products cannot access ₦500,000 in working capital because she doesn’t own land. Her potential remains unrealized not from lack of ability, but lack of inherited assets.
Youth Unemployment Crisis
Nigeria faces a youth unemployment crisis with rates exceeding 30% among citizens aged 15-35 according to National Bureau of Statistics data. This unemployment is not primarily skills-based—Nigerian youth demonstrate remarkable entrepreneurial creativity, technical competence, and market adaptability. The constraint is access to starting capital.
Without the ₦300,000 to ₦1,000,000 needed to launch a viable micro-enterprise, talented individuals languish in unemployment or low-wage informal work that underutilizes their capabilities.
The Trust Deficit
Underlying all these challenges is a fundamental trust deficit between capital providers and capital users. Investors cannot reliably assess which businesses will succeed, identify which entrepreneurs will honor commitments, or verify that reported financials reflect actual performance.
This trust deficit represents approximately $3 billion in annual economic friction according to estimates from Nigeria’s Small and Medium Enterprises Development Agency. The cost manifests as foregone investments that would have created profitable returns for investors and growth capital for businesses.
Catalyst addresses this trust deficit not through imposing traditional financial infrastructure, but by creating new trust mechanisms suitable for informal and emerging enterprises. By making business performance visible through verifiable data, enabling community vouching as a form of collateral, and using blockchain for transparent capital flows, the platform transforms the question from “Does this business have collateral?” to “Does this business have capability?”