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Data-sharing infrastructure could help lenders assess businesses on real revenue patterns rather than property-backed collateral
Nigeria’s growing open banking ecosystem could fundamentally change how small and medium-sized businesses access credit, allowing lenders to assess a company’s actual cash flow and transaction history instead of relying heavily on conventional collateral such as land, buildings and other fixed assets.
The emerging model is particularly relevant to Nigeria’s millions of small businesses, many of which generate regular revenue but struggle to secure formal bank credit because they lack assets that can be pledged as security.
The argument is gaining momentum as Nigeria seeks to expand productive lending and improve access to finance for businesses. The Central Bank of Nigeria has historically recognised cash flow as an important basis for microfinance lending, rather than relying exclusively on physical collateral.
From physical assets to financial behaviour
Under a traditional lending model, a business seeking substantial financing may be asked to provide evidence of assets that can serve as collateral.
That requirement can exclude otherwise viable businesses.
A retailer, for example, may have strong daily sales and consistent inflows but own no property that a bank can accept as security. Similarly, a digital business may generate substantial recurring payments while possessing relatively few physical assets.
Open banking could help close that gap by allowing, with the customer’s permission, financial institutions and approved service providers to access relevant account information and build a clearer picture of a business’s financial behaviour.
Instead of asking only, “What assets do you own?”, lenders can increasingly ask, “How much money comes into this business, how consistently does it come in, and how does the business manage its obligations?”
That represents a potentially significant change in credit assessment.
Why cash flow matters
For a lender, a company’s transaction history can reveal patterns that a conventional balance sheet may not fully capture.
Regular customer payments, recurring expenses, supplier obligations and account balances can provide evidence of the business’s ability to generate and repay debt.
This could make cash-flow-based lending particularly useful for small businesses operating in retail, logistics, digital commerce, professional services and other sectors where revenue is generated continuously but physical collateral is limited.
The development also comes at a time when policymakers and industry stakeholders are pressing Nigerian banks to increase lending to productive sectors rather than concentrating heavily on government securities.
Open banking could widen the credit pool
The potential benefit extends beyond businesses that already have strong relationships with commercial banks.
A more data-driven lending ecosystem could allow alternative lenders and financial technology companies to evaluate customers using verified financial information, potentially increasing competition in the credit market.
For lenders, better access to transaction data could also improve risk assessment. Instead of relying primarily on historical credit records or collateral valuations, institutions could combine account activity with other permitted information to develop more dynamic assessments of repayment capacity.
The objective is not necessarily to eliminate collateral altogether.
Rather, the bigger shift could be toward matching the size and structure of credit to the demonstrated financial strength of the borrower.
Privacy becomes critical
However, the expansion of data-driven lending also creates an important responsibility: protecting customers’ financial information.
Open banking depends on customers having greater control over how their financial data is shared. Businesses and individuals therefore need to understand what information they are authorising third parties to access, why it is being accessed and how it will be used.
The more financial decisions become automated, the more important transparency, cybersecurity and responsible data governance become.
For lenders, access to more information should not automatically translate into indiscriminate lending. Data can improve credit decisions, but businesses can still experience volatile revenue, economic shocks and unexpected expenses.
What businesses need to know
The emergence of cash-flow lending does not mean every business will automatically qualify for cheaper or larger loans.
A strong transaction history can become an important part of a business’s financial profile, but lenders will still consider repayment capacity, existing obligations, credit history, business performance and prevailing economic conditions.
For SMEs, however, the direction is significant.
Keeping business transactions traceable and maintaining clear separation between personal and business finances could become increasingly important as lenders rely more heavily on financial data to assess creditworthiness.
A potential new chapter for SME finance
Nigeria’s credit challenge is not simply about the availability of money; it is also about how lenders identify businesses capable of using and repaying that money.
Open banking could provide part of the missing infrastructure.
If financial institutions can securely analyse verified cash-flow information, a business’s daily economic activity could become a stronger signal of creditworthiness.
The result could be a gradual movement away from a system where “no collateral” means “no loan” toward one where demonstrable financial performance becomes an increasingly important form of security.
For Nigeria’s SME sector, that could make open banking more than a payments or data-sharing innovation. It could become an important foundation for unlocking the next generation of business credit.
