There is a peculiar irony buried inside Nigeria’s development finance conversation. Multilateral Development Banks and Development Finance Institutions have spent the last decade loudly declaring that small businesses are the engine of inclusive growth on the African continent. They are not wrong. Nigeria’s 41 million MSMEs account for 86% of employment and roughly half of GDP. If you want to reduce poverty at scale, MSMEs are where the work happens.
And yet, most of these businesses struggle to access capital directly from MDBs and DFIs, or indirectly through intermediaries such as Private Equity and Venture Capital funds. The money exists. The mandate exists. The businesses cannot clear the bar.
That bar has a name: the big “G” in ESG, Corporate Governance. Environmental and social factors matter, and increasingly so, but for non-listed businesses, MSMEs and family-owned enterprises in particular, governance has become the defining blocker between ambition and capital. Across African markets, Harrison Rehoboth Consulting sees this play out on both sides of the capital table.
The Governance Problem Nobody Talks About Plainly
Ask any DFI investment officer what kills a promising SME application, and they rarely lead with environmental risk or social impact scores. They talk about governance. Who actually controls this business? Is there a decent financial record? Is there a board, and does it meet? Can the founder tell you the difference between company money and their own?
These are not trick questions. They are the minimum conditions for a lender to believe that capital deployed today will be managed responsibly tomorrow. For a striking proportion of Nigeria’s SMEs, the honest answers are: unclear, no, and not really.
A 2017 CFA Institute survey found that 67% of investment analysts worldwide factored governance into their decision-making, ahead of environmental and social factors, both at 54%. In the EMEA region, that number climbed to 74%. These are the people sitting across the table from Nigerian businesses seeking international capital. Governance is usually the first filter.
The academic literature backs this instinct. Governance is the ESG factor with the clearest, most documented link to financial performance. It predicts outcomes better than environmental or social factors alone, and companies that get it right tend to outperform those that do not by a margin that is neither small nor accidental. When the people making decisions have the right incentives, the right information, and real accountability, better decisions follow. Environmental and social risks get managed. Capital gets protected.
The history of corporate collapses is largely a history of governance failures the board either could not see or chose not to address. Enron’s market value fell from $60 billion in December 2000 to zero by October 2001, the result of a board that had failed at every level: oversight, independence, accountability. Theranos tells a similar story from a different industry: a board stacked with distinguished names and almost no one with the scientific competence to question what the company claimed its technology could do. In both cases, the governance failure was not incidental to the collapse. It was the collapse.
For Nigerian SMEs, the failure mode is less dramatic and just as disqualifying. A business where the founder is simultaneously the owner, the sole director, the chief financial officer, and the person who decides whether profit gets reinvested or taken home. A company with no formal ownership structure, no separation between personal and business accounts, and financial records that exist only because a tax filing required them. These are not villainous governance failures. They are the predictable result of building a business in an environment where formalisation was never incentivised and often actively inconvenient.
A 2026 Deadline Nobody Is Ready For
The Financial Reporting Council of Nigeria published its Sustainability Reporting Roadmap in 2022, with 2026 as the implementation horizon. Publicly listed companies, financial institutions, and large private enterprises are expected to begin producing sustainability disclosures aligned with international frameworks including ISSB, GRI, and TCFD. The intent is to signal to international investors that Nigerian capital markets are maturing.
On paper, this is a sensible policy.
The disclosure architecture in that roadmap assumes a finance team, an internal audit function, a company secretary, and a working data management system. Nigeria’s SMEs have almost none of these things. The gap here is architectural. Training programmes will not close it. The frameworks were designed for large listed companies and applied, without modification, to an entirely different category of business. The 2026 deadline is approaching. The SME sector has no on-ramp.
The Supply Chain Trap
Nigeria’s large companies, the listed multinationals, the tier-one banks, the consumer goods companies facing scrutiny from global investors and corporate customers with more mature ESG frameworks, are under their own pressure to manage ESG risks across their supply chains. Scope 3 emissions accounting requires them to report on supplier behaviour. Social audits require documented labour conditions throughout those chains. Governance standards require visibility into who they are doing business with.
Their supply chains are overwhelmingly made up of SMEs.
When a large Nigerian FMCG company needs to demonstrate ESG compliance to a global investor or a European customer, it takes the path of least resistance: replace opaque, hard-to-audit local SME suppliers with larger, more formalised ones. If no formalised local alternatives exist, the replacement comes from abroad. The SME does not lose the contract because its product is inferior. It loses because it cannot produce a document.
What a Smarter Architecture Looks Like
Kenya’s SME Sustainability Framework offers a useful reference point. Rather than applying identical disclosure requirements across all company sizes, it creates tiered entry points: basic governance attestation for micro-enterprises, streamlined environmental reporting for small companies, and fuller disclosure at the medium-enterprise tier. The IFC’s MSME Climate Finance Toolkit takes a similar approach, building data collection tools that operate within the actual capacity of small businesses.
Nigeria has the institutions to build something comparable. The Securities and Exchange Commission holds regulatory authority over capital markets disclosure. SMEDAN exists specifically to develop small business policy. The Bank of Industry is already the country’s primary MSME lender. What is missing is coordination between these three bodies and a deliberate decision to build a tiered compliance architecture before the FRCN’s 2026 deadline arrives.
Allowing sustainability disclosure requirements designed for listed companies to wash over the SME sector without effect accelerates the formalisation gap. It makes it harder for DFIs to deploy capital into the businesses that could drive employment at scale.
Conclusion
Nigeria is not short of frameworks, roadmaps, or policy aspirations. The country’s ESG discourse has grown considerably in sophistication over the past five years. Sustainability conferences fill hotel ballrooms in Lagos. Listed companies publish increasingly polished ESG reports. The Financial Reporting Council has a credible roadmap. Almost none of it reaches the businesses that employ most Nigerians.
DFIs have been clear about their intentions. SMEs are where they want to focus, because SMEs are where poverty reduction at scale becomes possible. The capital is available. The mandate is explicit. The bottleneck is governance and disclosure infrastructure that these businesses do not have and cannot build without a different kind of support.
This is precisely the gap that Harrison Rehoboth Consulting works in. As a Pan-African advisory firm operating at the intersection of strategy, capital, and sustainability, the firm supports enterprises and investors navigating investment readiness, governance strengthening, and environmental and social compliance across African markets. For SMEs trying to close the distance between where they are and where a DFI needs them to be, that kind of advisory support is often the missing piece the frameworks never account for.
If the goal is genuinely inclusive growth, and if MSMEs are genuinely the vehicle for achieving it, then the compliance architecture around ESG needs to be built for those businesses. The question worth putting to regulators, DFIs, and intermediaries directly is: what exactly is the plan for the 41 million businesses the current frameworks were never designed to reach?
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