Project – Impact of Fintech Digital Lending Platforms on SME Growth in Nigeria: A Study of Kuda, Carbon, and Branch International

CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

The rapid advancement of financial technology (fintech) has significantly transformed the global financial ecosystem, particularly in the areas of credit delivery, payments, savings, and investment. One of the most impactful innovations within this space is digital lending platforms, which use mobile technology, artificial intelligence, and data-driven credit scoring systems to provide fast and accessible loans to individuals and businesses. These platforms have reshaped traditional lending models by removing physical barriers such as collateral requirements, lengthy approval processes, and limited branch networks (Jalal-Eddeen, 2025).

In emerging economies like Nigeria, access to finance remains one of the most critical challenges facing Small and Medium Enterprises (SMEs). SMEs contribute significantly to employment generation, poverty reduction, and GDP growth, yet they often struggle to obtain credit from traditional banks due to strict lending conditions and perceived high risk (Onohwakpo & Stanfast, 2021). The emergence of fintech digital lending platforms such as Kuda, Carbon, and Branch International has therefore introduced alternative financing channels that are faster, more flexible, and more inclusive.

These platforms leverage mobile applications and digital footprints such as transaction history, airtime usage, and behavioural data to determine creditworthiness. This innovation has expanded financial access for previously excluded SMEs, especially informal businesses that lack collateral or formal credit history (Oladele & Anifowoshe, 2023). Studies have shown that fintech lending significantly improves credit accessibility, business resilience, and operational performance among SMEs in Nigeria (Hayes, 2025).

Furthermore, fintech lending platforms have contributed to financial inclusion by increasing the participation of SMEs in formal financial systems. According to recent studies, digital lending ecosystems have grown rapidly in Nigeria due to increased smartphone penetration, youth entrepreneurship, and the rise of cashless policies introduced by financial regulators (Ossai & Abdullahi, 2026). However, concerns remain regarding high interest rates, short repayment cycles, data privacy issues, and over-indebtedness risks associated with digital loans.

Despite these developments, the actual extent to which fintech digital lending platforms influence SME growth in Nigeria remains a subject of debate. While some scholars argue that digital lending enhances SME expansion and revenue growth, others suggest that it may lead to financial distress due to aggressive repayment structures (Yue et al., 2022). Therefore, it is important to empirically examine the relationship between fintech lending platforms and SME growth in Nigeria using leading fintech firms such as Kuda, Carbon, and Branch International as case studies.

1.2 Statement of the Problem

Access to finance remains one of the most significant barriers to SME growth in Nigeria. Traditional banking institutions often require collateral, lengthy documentation, and strict credit history assessments, which exclude many small businesses from accessing formal credit markets (Mohammed et al., 2025). As a result, many SMEs rely on informal lending sources, which are often expensive and unreliable.

The emergence of fintech digital lending platforms such as Kuda, Carbon, and Branch International was expected to solve this financing gap by providing fast, collateral-free, and accessible credit to SMEs. These platforms use algorithm-based lending systems that allow borrowers to access funds within minutes. However, despite their rapid adoption, there is still uncertainty about their actual impact on SME growth.

Some empirical studies suggest that fintech lending improves SME performance by enhancing working capital, increasing production capacity, and enabling business expansion (Ogbobe & Ezeala, 2024). Conversely, other studies argue that high interest rates, short repayment periods, and debt accumulation may negatively affect SME sustainability, leading to financial instability (Yue et al., 2022).

In addition, there is limited empirical evidence that specifically focuses on the comparative impact of major fintech lending platforms such as Kuda, Carbon, and Branch International on SME growth in Nigeria. Most existing studies focus broadly on fintech or financial inclusion without isolating the specific contribution of digital lending platforms.

This creates a clear research gap regarding whether fintech digital lending platforms genuinely promote SME growth or merely increase short-term access to credit without long-term business sustainability. Therefore, this study investigates the impact of fintech digital lending platforms on SME growth in Nigeria.

1.3 Objectives of the Study

The main objective of this study is to examine the impact of fintech digital lending platforms on SME growth in Nigeria.

The specific objectives are to:

1. Examine the effect of fintech digital lending platforms on SME access to credit.
2. Assess the impact of digital loan accessibility on SME business expansion.
3. Determine the influence of fintech loan interest rates and repayment structure on SME sustainability.
4. Evaluate the overall contribution of fintech platforms (Kuda, Carbon, and Branch International) to SME growth in Nigeria.

1.4 Research Questions

The study seeks to answer the following research questions:

1. How do fintech digital lending platforms influence SME access to credit in Nigeria?
2. What is the impact of digital loan accessibility on SME business expansion?
3. How do interest rates and repayment structures of fintech loans affect SME sustainability?
4. What is the overall contribution of Kuda, Carbon, and Branch International to SME growth in Nigeria?

1.5 Research Hypothesis

The study is guided by the following null hypothesis:

H₀: Fintech digital lending platforms have no significant effect on SME growth in Nigeria.

1.6 Significance of the Study

This study is significant to various stakeholders.

For SME owners, it provides insight into how fintech lending affects business growth and financial stability. For fintech companies such as Kuda, Carbon, and Branch International, it offers feedback on how their lending models influence real business outcomes.

For policymakers such as the Central Bank of Nigeria (CBN), the study provides evidence for regulating digital lending platforms to ensure consumer protection and sustainable credit systems. For researchers, it contributes to the growing literature on fintech and SME development in emerging economies (Onohwakpo & Stanfast, 2021).

1.7 Scope of the Study

This study focuses on fintech digital lending platforms and SME growth in Nigeria. It specifically examines three major fintech companies: Kuda, Carbon, and Branch International. The study covers SMEs operating in Nigeria and analyzes key variables such as credit access, business expansion, loan repayment structure, and sustainability.

1.8 Operational Definition of Terms

Fintech Digital Lending Platforms: Online financial systems that provide loans using mobile apps and digital credit scoring systems without traditional collateral requirements.

SMEs (Small and Medium Enterprises): Small-scale businesses operating in Nigeria that contribute significantly to employment and economic growth.

SME Growth: Expansion in revenue, profitability, customer base, and operational capacity of small businesses.

Credit Access: The ability of SMEs to obtain loans from financial institutions or digital platforms.

Project – Impact of Fintech Digital Lending Platforms on SME Growth in Nigeria: A Study of Kuda, Carbon, and Branch International