Nigeria’s micro, small and medium enterprises are reportedly losing between N5 trillion and N10 trillion every year to internal fraud and weak governance, according to a policy brief by the Centre for the Promotion of Private Enterprise (CPPE).
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Scale and nature of the losses
The CPPE report indicates that employee-related fraud — including cash and inventory theft, payroll manipulation and procurement kickbacks — is significantly eroding profits and limiting reinvestment. Many SMEs operate on tight working capital margins, meaning such losses can threaten sustainability.
The report emphasises that fraud is more prevalent in informal and semi-formal businesses, where internal controls are often weak, and accounting practices are limited. CPPE warns that without structured governance, these losses could continue to grow, undermining the broader SME sector’s contribution to economic growth.
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Implications for SME growth
The losses not only affect business profitability but also reduce enterprise resilience and job creation potential. Many SMEs in Nigeria provide the majority of employment outside the public sector. Financial leakages due to fraud, therefore, have broader socio-economic consequences, impacting livelihoods and economic stability.
CPPE recommends that SMEs adopt digital accounting and payroll systems, implement regular audits and develop transparent reporting procedures. Stronger internal control frameworks can mitigate risks, improve accountability, and facilitate access to formal credit.
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Policy and institutional recommendations
Experts advocate for government-supported capacity building programmes to improve SME governance and digital literacy. The adoption of regulatory incentives, such as tax rebates for businesses implementing strong internal controls, could further encourage compliance.
Financial institutions are also urged to consider governance structures when evaluating SME credit applications. Enhancing risk management practices is seen as essential to reducing the gap between potential and actual growth in the SME ecosystem.
Employee fraud represents a critical vulnerability for Nigerian SMEs. Reducing these losses is key to boosting enterprise sustainability, formalisation, and growth. Effective governance, digital tools and institutional support will determine whether SMEs can convert potential into measurable economic impact.
