Nigeria’s SMEs Do Not Need to Stay Small
The case for cohorting and portfolio operating platforms
When I moved to Nigeria after years in transaction advisory in the United States and Canada, I engaged one of my private equity prospects to understand their investment appetite. I was surprised to find that, despite substantial investment capital, they could not find many opportunities that met their minimum ticket size of $30 million. The capital sat on the sidelines, and our growth companies, the vectors of economic growth, went without it. There is an old proverb: “If you want to go fast, go alone. If you want to go far, go together.” When it comes to how we finance small businesses in Nigeria, we have largely done the opposite. We ask every entrepreneur to go alone, and then wonder why so few of them go far.
Why? Are Nigerian entrepreneurs less talented? Less ambitious? No. The country has roughly 40 million micro, small and medium enterprises, according to SMEDAN and the National Bureau of Statistics, and together they account for over 40 per cent of GDP. They are building products, creating jobs and serving local markets with remarkable resilience. Yet too many of them remain below the threshold that serious investors can engage with. They are promising, but fragmented; active, but under-supported; essential to growth, but often too small to meet the minimum investible size required by institutional capital.
Nigeria has too many small businesses, and too little business.
Capital gap or readiness gap?
Nigeria’s MSME financing gap is estimated at $32.2 billion (IFC, 2022). It is tempting to read this number as proof that capital is scarce or that investors are unwilling. However, the reality is more uncomfortable: our financing gap is as much a readiness gap as it is a capital gap.
Consider it from the side of a development finance institution, a pension fund or a commercial bank. Every SME transaction requires its own origination, its own legal work, its own due diligence and its own monitoring. The business often has inconsistent records, thin governance (the founder is frequently the board, the finance department and the sales team) and uneven access to markets. A ₦500 million request carries almost the same transaction cost as one ten times its size, at a fraction of the return. Multiply that across hundreds of firms and the arithmetic simply does not work.
So the capital stays on the sidelines, much like that private equity fund’s. Many of these businesses have real merit; the deal structure around them does not. Small size, in other words, is a business challenge and an investment design problem at the same time. Design problems, however, can be solved.
Cohorting: going alone or going together?
The first part of the solution is cohorting: deliberately grouping SMEs by sector, geography, value chain, growth stage or financing need, and preparing them for capital as a group instead of one at a time.
Cohorts change the economics of support. Technical assistance, governance training, financial reporting templates and investor-readiness preparation can be delivered once to many firms, instead of many times to one. Firms learn from each other, and standards rise together.
Cohorts also change the economics of investment. Investors get a clearer pipeline, comparable data across firms and a far more efficient way to assess several businesses at once. When a cohort is built around a value chain, the benefits compound. The firms begin to trade with each other, and the investor sees portfolio-level cashflows in place of a string of isolated credit risks.
Portfolio operating platforms: the infrastructure SMEs cannot build alone
The second part is the portfolio operating platform: shared infrastructure that no single SME could afford on its own. Finance and treasury, accounting and audit, legal and compliance, ESG reporting, procurement, digital traceability, logistics and market access can all be run centrally and paid for across the group.
Every SME eventually bumps against the same four ceilings, however well it is managed: access to capital at viable rates, institutional-grade governance and compliance, market leverage with large buyers and input suppliers, and the ability to absorb shocks. A logistics failure, an input price spike or a bad season can be an existential event for a standalone firm. Inside a platform, it becomes a manageable one.
Who owns such a platform matters. It works best as an independently managed company, founded and anchored by a development finance institution, with the SMEs joining under contract, much as franchisees join a franchise system. The founders keep their businesses; the platform earns fees, a financing margin and a modest royalty for the finance, services and market access it provides. A professional manager runs it for a management fee, and earns a carried interest only when new investors buy in at a value that proves the founder’s capital has grown.
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For investors, the platform does something just as important. It becomes the single counterparty. The lender finances one professionally governed entity, with one facility, consolidated reporting, portfolio covenants and a cashflow waterfall that prioritises repayment. The platform is the bridge between entrepreneurs who need support and investors who need confidence.
The evidence suggests that confidence is warranted. The Global Emerging Markets Risk Database, a consortium of 26 multilateral and development finance institutions tracking some 15,000 private-sector loans over three decades, reports an average annual default rate of 3.56 per cent and an average recovery rate of 72.2 per cent (IFC, October 2024). Emerging market credit, properly structured and governed, is considerably less risky than its reputation.
Five small deals or one investible transaction?
One cohort we are structuring in Nigeria illustrates the point. It brings together five agrifood enterprises that form one complete value chain, from climate-smart production and aggregation, to cold chain logistics, to cassava processing, to fortified nutrition foods and premium consumer brands. Each firm is seeking in the region of ₦500 million to ₦650 million, below the ticket size many institutional investors will consider. On its own, each is a small deal, the kind that private equity fund would never have looked at.
Together, the picture changes. The five firms generated a combined ₦3.0 billion in audited revenue in 2025, up 54 per cent from 2023, and ₦1.24 billion in cumulative net profit over three years. All five have three years of audited accounts. Their combined request of close to ₦3 billion begins to look like a transaction that institutional capital can engage with, backed by diversified cashflows and members that supply and buy from one another.
From isolated SMEs to investible ecosystems
Aggregation alone is not enough; the firms inside a platform must be ready for it. To this end, we are proposing a two-stage approach.
The Portfolio Readiness & Onboarding Programme (PROP) is the capability-building stage. Enterprises standardise their governance, financial management and reporting, procurement and compliance, risk controls and market integration. Those that are certified portfolio-grade are onboarded.
The Portfolio Operating Platform (POP) is the investment and operating vehicle. It is an independently managed company that finances and serves PROP-certified enterprises as a single, institutionally governed counterparty for development banks, DFIs, pension funds and commercial lenders.
PROP is the process; POP is the product. Admission is governed, not assumed, with clear criteria such as at least two years of audited accounts, positive EBITDA and genuine value chain complementarity. The model is also sector-agnostic. Agrifood is a natural place to start, but the same architecture can serve manufacturing, aquaculture, health and tech-enabled services.
This is ecosystem-building. It connects capital providers, development partners, business associations, technical experts and growth-ready companies around a shared structure, and every new cohort that graduates strengthens the credit profile of the whole.
Build the platforms that make scale possible
To investors: look beyond single-company deal flow. Aggregated, governed SME pipelines can offer the diversification, reporting and ticket sizes your mandates require.
To development partners and policymakers: fund the operating infrastructure (governance, data quality, shared services and market access) that makes SMEs investible. It is less glamorous than a grant announcement, but it is where the real leverage lies.
To entrepreneurs and business associations: be willing to open your books and your governance to a shared standard. The price of scale is transparency.
There is a proverb that captures this well: “Five fingers alone are weak; together they make a fist.” If Nigeria wants more investible SMEs, it must build the structures that allow small businesses to become stronger together. Our SMEs do not need to stay small. They need to stop standing alone.
What are your thoughts? Which sector would you cohort first?
Sources: IFC, Market Bite Nigeria (Nov 2022); GEMs Consortium / IFC Research Note (Oct 2024); SMEDAN and NBS national MSME survey. Cohort figures are arithmetic sums of the five members’ audited accounts, FY2023–2025.
