Accessing Nigeria’s $3 Billion Consumer Lending Market

Apr 18, 2024|The Stears Team

Stears estimates the total addressable market (TAM) for consumer lending in Nigeria at $2.7 billion as of the end of 2023, which is at least 30% greater than available market estimates. 

Our TAM result is generated through the Stears Credit Market Mapping model, which combines the estimated market size for formal consumer loans ($2.1 billion) and the projected impact of borrowers transitioning from informal to formal loan sources ($621 million). 


These results are particularly powerful for two reasons.  

First, they provide investors and lending operators with rigorous estimates of the serviceable market for consumer lending based on current conditions, helping them to de-risk investments and assess market opportunities. The scarcity of rigorous, up-to-date estimates of credit market size creates problems for commercial banks, digital lenders, microfinance institutions, and future investors by effectively making them ‘market-blind’ and unable to estimate Nigeria’s actual consumer credit market size. These data hurdles make it difficult for investors to make rational investment decisions or set reasonable expectations for market returns. 

Second, they provide investors and lending operators with rigorous estimates of Nigeria’s consumer lending market potential based on the existing informal loan market. Nigeria’s informal loan market is large and not yet well understood. EFInA data indicates that more than 9 out of 10 Nigerians with an existing loan obtained it from a non-bank institution. Yet there is a spectrum within this informal category, ranging from borrowing from family & friends to organised community savings groups. Identifying which informal borrowers—and under what conditions—will transition to the formal credit market remains a massive source of untapped potential for Nigeria’s consumer lending industry.   

While multiple attempts have been made to estimate the impact of improved financial inclusion on consumer lending, our approach is unique in estimating a quantifiable revenue impact of improved financial access on Nigeria’s consumer lending market. Applying probabilistic and machine learning techniques to a nationally representative survey data from EFInA, the Stears Credit Market Mapping model identifies the cohort of informal borrowers most likely to transition to the formal lending market. These high-probability informal borrowers are mapped to the formal lending market as the additional market potential.  

While understanding the existing market size for formal borrowers is valuable, Stears takes an extra step by evaluating the untapped potential within the population of informal borrowers likely to embrace formal credit products. Furthermore, we provide multiple market size scenarios based on changes in national income and credit data infrastructure.

This unique approach establishes Stears' Credit Market Mapping Model as an indispensable tool for credit providers and investors keen on capitalising on new opportunities within Nigeria's dynamic consumer credit landscape.

How we built the model

Stears Credit Market Mapping model attempts to estimate the market size and potential for Nigeria’s consumer credit market. 

The model provides three key outputs:  

  1. The current market size 
  2. The potential market size: Individuals who currently rely on informal lending sources and are deemed highly likely to adopt formal credit. 
  3. Scenario analysis to measure the change in the potential market size due to changes in income or creditworthiness.

Current market size 

Estimates of Nigeria’s formal consumer lending market were derived from aggregate lending data provided by the Central Bank of Nigeria. We cross-referenced this estimate with lending data from retail banks, estimates from industry experts, and other private data sources, generating the $2.1 billion estimate for Nigeria’s consumer lending market today.

Market potential

The unique value addition is how we used the market size number to generate market potential estimates for Nigeria. 

Our model used EFInA (Enhancing Financial Innovation and Access)'s 2023 survey, a nationally representative biennial survey dataset conducted since 2008. The survey—the largest financial access & usage survey in Africa—assesses, among other financial behaviours, informal and formal credit use among Nigerian adults (18 years and above). Formal credit sources include licensed financial institutions such as commercial banks, micro-finance banks, digital lenders, Islamic banks, mortgage banks, and mobile money operators. Informal sources include unlicensed entities such as community-based co-operatives, savings groups, village associations, moneylenders, family or friends, etc. 


To generate the market potential estimates, we first developed a binary classification model utilising regression analysis to predict whether an informal borrower will likely transition to formal status. This prediction is based on evaluating the similarity between several characteristics and behaviours of the borrowers found in the survey.   

Our model is trained on the EFInA survey data and generates unique probabilities for each respondent. This probability is the model’s assessment of how well each respondent “matches” the profile of formal borrowers in the survey. Informal borrowers with a more than 70% probability of being formal are then classed as having a high likelihood of transitioning to formal borrowing. The Stears Credit Market Mapping model identifies these informal borrowers as having “high potential” for formal loans based on their socioeconomic, demographic, and behavioural similarities to formal borrowers. This segment presents an untapped market demand for credit providers and investors to target tailored products and solutions, capitalising on this promising market segment.

In our base scenario, the identified cohort of high-likelihood informal borrowers equals almost a third of the existing formal consumer lending market, resulting in an additional market potential of $621 million. 

This estimate shows the level of latent demand in Nigeria’s consumer lending market. Even with an existing market size above $2 billion, operators can reasonably expect to access an additional $621 million in consumer loan demand from informal borrowers with “high potential” for formal loans. 

Market potential scenarios

The scenarios we present give investors and operators a sense of the elasticity of the market potential to changes in observable economic features: income and creditworthiness. 

Ignoring changing macroeconomic conditions would be naive when both borrower demand, repayment capacity and lender risk appetites are prone to evolving macroeconomic headwinds. While Nigeria’s recent currency and inflationary pressures have increased borrower default risks and made lenders more cautious in the short term, ongoing recent market reforms, if sustained, could prompt a shift towards a saner economic climate and improve the overall market outlook. 

Within this context, it’s therefore crucial to embed a dynamic view when assessing the potential of Nigeria’s consumer credit market to accommodate significant changes in the economy. Stears’ model allows investors to do just that. The model employs impact-based scenario analysis for users to assess the potential outcome of changing variables on the predicted credit market potential. 

We assess how market potential estimates change if income levels or creditworthiness increase or decrease significantly. This allows operators to independently apply their own optimistic or pessimistic view of the future market’s trajectory and understand the potential market outcomes based on varying assumptions. For example, our market potential estimate for the creditworthiness bear scenario is nearly 10% lower than the base case, while the market estimate for the income bull scenario is nearly a third greater than the base case.

For investors who want to seize new opportunities in Nigeria’s dynamic consumer credit landscape, Stears’ Credit Market Mapping Model helps them assess the market's true potential and offers an invaluable guide for tapping into promising segments of the informal credit market. 

Stears’ Credit Market Mapping Model is only available to corporate subscribers. Request a demo today to get corporate access to