Nigeria's Informal Financial Landscape: Untapped Opportunities in Alternative Financial Infrastructure

Nigeria's informal financial sector, long characterized by cash-based transactions and limited access to formal banking, is undergoing a transformative shift. Driven by technological innovation and evolving regulatory frameworks, alternative financial infrastructure-encompassing mobile money, microfinance, and peer-to-peer (P2P) lending-is unlocking new opportunities for investors. According to a Yahoo Finance report, Nigeria's alternative lending market is projected to grow from US$171.3 million in 2023 to US$542.1 million by 2028, reflecting a compound annual growth rate (CAGR) of 23.8% during this period. This rapid expansion is fueled by fintech startups leveraging machine learning to streamline credit access and reduce reliance on traditional collateral, the Yahoo Finance report noted.

The Rise of Digital Alternatives

Despite years of fintech growth, Nigeria's informal economy remains heavily cash-dependent. A 2025 TechCabal analysis revealed that only 25% of informal businesses reported digital payments accounting for at least 10% of their revenue. However, the proliferation of mobile wallets and real-time payment systems like the NIBSS Instant Payments (NIP) is accelerating a shift toward a cash-lite environment, TechCabal found. Strategic partnerships are further bridging gaps: Sterling Bank's collaboration with Payhippo is addressing credit access for merchants, while Flutterwave's Buy Now, Pay Later service is boosting e-commerce adoption.

Regulatory Evolution and Investor Implications

The Central Bank of Nigeria (CBN) has introduced a series of reforms to stabilize and formalize the financial ecosystem, according to the CBN reforms page. In 2023, the CBN unified the foreign exchange market under a "willing buyer, willing seller" model, reducing arbitrage and improving transparency; by 2024 it had revoked licenses for 4,173 non-compliant Bureau de Change (BDC) operators and imposed stricter capital requirements on banks, as detailed on the CBN reforms page. These measures signal a commitment to curbing systemic risks while fostering trust in digital infrastructure.

In 2025, the Federal Competition and Consumer Protection Commission (FCCPC) introduced the 2025 consumer lending regulations, mandating transparency in interest rates, fees, and data privacy. These rules align with the Nigeria Data Protection Act 2023 and aim to protect borrowers from predatory practices. For investors, this regulatory clarity reduces operational risks and creates a more predictable environment for scaling alternative finance models.

Navigating Challenges and Opportunities

While regulatory progress is promising, challenges persist. The Nigerian Upstream Petroleum Regulatory Commission (NUPRC) has prioritized oil and gas investments under the Petroleum Industry Act (2021), but similar frameworks for informal finance remain underdeveloped, according to a Gazette report. Additionally, the Federal Inland Revenue Service (FIRS) introduced a 10% withholding tax on interest earned from short-term securities in 2025, a move aimed at enhancing fiscal transparency but potentially affecting investor returns, as reported by Business Insider Africa.

Investors must also contend with infrastructural gaps, such as limited digital payment adoption in rural areas. However, the growing demand for accessible credit-particularly among small businesses and unbanked populations-presents a compelling case for alternative finance. P2P platforms, for instance, are bypassing traditional collateral requirements by using alternative data (e.g., transaction history, social media activity) to assess creditworthiness, the Yahoo Finance report observed.

Conclusion

Nigeria's informal financial sector is at a pivotal juncture. The convergence of technological innovation, regulatory reforms, and investor interest is creating a fertile ground for alternative financial infrastructure. While challenges like cash dependency and fiscal policy shifts remain, the projected growth of the alternative lending market and the CBN's proactive stance suggest a landscape ripe for strategic investment. For those willing to navigate the complexities, Nigeria's informal economy offers a unique opportunity to drive financial inclusion and capitalize on a rapidly evolving market.