Dear Subscriber,
Loan Defaults Rise as Tight Policy Bites
Small businesses are beginning to feel the weight of the Central Bank’s sustained monetary tightening. The latest CBN Credit Conditions Survey showed that loan defaults spiked across all borrower categories in Q2 2025, with SMEs recording the sharpest drop in repayment performance. The default index for SMEs fell from 0.5 to -7.2, while household secured loan defaults dropped from 3.9 to -7.0 —highlighting mounting repayment stress and liquidity strain.
This development comes as the CBN held the Monetary Policy Rate at 27.5% for the third consecutive meeting, maintaining its focus on inflation control amid persistent price pressures. But the data suggest that the real economy—especially small firms operating on thin margins—is under growing strain. The path ahead requires a careful balancing act—taming inflation without choking off the recovery. For a largely informal and consumption-driven economy, protecting small enterprises must be part of the policy calculus.
Attracting the Right Capital for Nigeria’s $1 Trillion Dream
Nigeria’s quest for a $1 trillion economy hinges not just on attracting capital, but on attracting the right kind of capital. While Foreign Portfolio Investment (FPI) has surged—reaching $8.05bn in Q1 2025 alone—it remains volatile and short-term in nature, driven by interest rates and investor sentiment. In contrast, Foreign Direct Investment (FDI), which stood at a modest $250 million in Q1, offers long-term value through job creation, technology transfer, and industrial development. FPI inflows may temporarily boost reserves, but outflows—₦420 billion in Q1—expose Nigeria to capital flight and exchange rate shocks.
To shift the balance, Nigeria must improve ease of doing business, invest in infrastructure, and offer targeted incentives to attract FDI. Ultimately, sustainable growth depends on productive, stable capital. FPI may fill short-term gaps, but only FDI can build the foundations for economic transformation and long-term resilience.
In this latest edition of Prism, the FDC Think Tank takes a deep dive into recent economic developments and their impact on your business.
