INTRODUCTION

Micro, Small and Medium Enterprises (MSMEs) occupy a central position in Nigeria’s economic structure. According to various National Bureau of Statistics and SMEDAN reports make up approximately 96%-99% of all businesses in Nigeria, contributing around 46% -48% to the national GDP and accounting for 84% of total employment, yet they remain among the most legally exposed actors in commercial practice. This exposure is most evident in dispute resolution, where the formal justice system, though constitutionally guaranteed, often proves economically inaccessible. The emergence of the MSME Arbitration Scheme by the Chartered Institute of Arbitrators Nigeria Branch is best understood not merely as an institutional innovation, but as a response to a structural imbalance between legal rights and practical enforceability.

The legal and regulatory understanding of MSMEs in Nigeria is rooted in the framework established by the Small and Medium Enterprises Development Agency of Nigeria Act 2003, which designates SMEDAN as the central body responsible for the promotion, coordination, and development of small and medium enterprises in Nigeria. While the Act itself does not prescribe statutory thresholds, the classification framework developed under the National Policy on Micro, Small and Medium Enterprises coordinated by SMEDAN has become the accepted standard in policy and practice. Under this framework, a micro enterprise is typically defined as a business employing fewer than 10 persons with assets not exceeding ₦5 million excluding land and buildings. A small enterprise employs between 10 and 49 persons with assets between ₦5 million and ₦50 million, while a medium enterprise employs between 50 and 199 persons with assets ranging from ₦50 million to ₦500 million.

Although this asset and employment based classification is widely adopted, certain regulatory and financial institutions incorporate additional indicators such as turnover when assessing enterprise size for specific programmes, financing, or compliance purposes. This reflects a broader lack of uniformity across Nigeria’s MSME framework, where definitions may vary depending on the regulatory context in which they are applied.

This regulatory classification is complemented by the Companies and Allied Matters Act 2020, which introduces a more precise statutory concept of a small company under section 394. A company qualifies as small where its annual turnover does not exceed ₦120 million and its net assets do not exceed ₦60 million. Although this definition is primarily intended for corporate governance and compliance, it reinforces the broader legislative recognition that a significant category of Nigerian businesses operate within constrained financial and structural limits.

Read together, the SMEDAN framework and CAMA thresholds establish that MSMEs are not merely smaller versions of large corporations, but entities with fundamentally different operational realities. They often lack internal legal capacity, rely on informal documentation, and are unable to sustain prolonged or complex dispute resolution processes. This context is critical in understanding why conventional mechanisms have historically failed them.

In practice, MSMEs have relied largely on litigation for the enforcement of contractual rights. However, the procedural demands of court processes, combined with delays arising from congested dockets, often render litigation commercially irrational. A small business pursuing a claim risks expending more in legal costs and time than the value of the dispute itself, leading in many cases to abandoned claims or forced settlements.

Arbitration, though theoretically more flexible, has not traditionally resolved this problem. Under Nigerian law, now consolidated in the Arbitration and Mediation Act 2023, arbitration agreements are binding and enforceable, and judicial intervention is limited. Courts have consistently affirmed this position in cases such as M.V. Lupex v NOC and Statoil Nig Ltd v NNPC. This pro arbitration stance has been reaffirmed in more recent decisions, including NNPC v Fung Tai Engineering Co Ltd, P.E. Bitumen Resources v Cocean Nigeria Integrated Ltd, and NICN Insurance v Brighthouse Estate Ltd, where the courts continued to emphasise the binding nature of arbitration agreements and the limited scope for judicial interference. Yet, despite this strong legal foundation, arbitration has remained functionally inaccessible to MSMEs due to cost, procedural formality, and institutional complexity.

The MSME Arbitration Scheme operates within this gap. Rather than creating a new legal regime, the Scheme adapts existing arbitration principles to the realities of small scale commercial activity. Its jurisdiction is deliberately limited to disputes with monetary values between ₦250,000 and ₦5,000,000, thereby aligning the process with the scale of disputes typically encountered by MSMEs.

Access to the Scheme is dependent on the existence of an arbitration agreement, but the approach adopted is notably flexible. In addition to formal contractual clauses, arbitration agreements may be evidenced through signed invoices, receipts, or post dispute submission agreements. This reflects a practical recognition of the informal documentation practices common among small businesses.

The procedural structure of the Scheme is designed to ensure both speed and accessibility. A party initiates the process by notifying the other party and applying to the Chairman of the Chartered Institute of Arbitrators Nigeria Branch for the appointment of a sole arbitrator, accompanied by a modest administrative fee. The appointment is typically made within seven days, and the arbitrator is required to issue a timetable shortly thereafter.

Proceedings are conducted with a high degree of procedural flexibility, with the arbitrator retaining discretion over the process subject to the overriding objective of efficiency. The Scheme contemplates documents only proceedings and the use of online dispute resolution mechanisms in order to minimise cost and delay. Written submissions are expected to be concise, and legal representation is not mandatory, thereby lowering barriers to participation.

A defining feature of the Scheme is the strict timeline imposed on the arbitral process. The arbitrator is expected to deliver a final, reasoned award within 90 days of appointment, or as soon as practicable. This emphasis on speed directly addresses one of the most significant weaknesses of both litigation and conventional arbitration from the perspective of MSMEs.

A defining feature of the Scheme is its cost structure, which introduces a level of predictability rarely seen in arbitration and directly addresses one of the primary barriers to MSME participation. Unlike conventional arbitration, where fees may be negotiated or accrue unpredictably, the Scheme adopts a fixed and tiered cost regime tied to the monetary value of the dispute.

For disputes with a value between ₦250,000 and ₦1,000,000, the arbitrator’s fee is fixed at ₦50,000, while all other recoverable arbitration and party expenses are capped at a maximum of ₦25,000. For disputes exceeding ₦1,000,000 but not more than ₦2,000,000, the arbitrator’s fee increases to ₦100,000, with recoverable expenses capped at ₦50,000. For disputes above ₦2,000,000 and up to ₦5,000,000, the arbitrator’s fee is fixed at ₦250,000, while recoverable expenses are capped at ₦100,000.

In addition to these amounts, a party initiating arbitration is required to pay a non refundable administrative fee of ₦10,000 at the point of application for the appointment of an arbitrator.

This structured approach ensures that parties are able to determine, at the outset, the maximum financial exposure associated with the arbitration process. It also reflects a deliberate policy choice to align dispute resolution costs with the economic scale of MSME transactions, thereby preventing situations in which the cost of enforcement exceeds the value of the underlying claim.

Despite its simplified procedures, the Scheme retains full legal validity. Awards issued are final, binding, and enforceable in the same manner as arbitral awards under Nigerian law. Courts continue to play a supportive role through enforcement and limited supervisory jurisdiction, reinforcing confidence in the process.

The significance of the MSME Arbitration Scheme lies in its practical orientation. It does not seek to redefine arbitration in doctrinal terms, but rather to recalibrate it in a manner that aligns with the economic realities of MSMEs. By reducing cost, simplifying procedure, and compressing timelines, it addresses the long standing disconnect between the existence of legal rights and the ability to enforce them.

In this respect, the Scheme represents a pragmatic shift in Nigeria’s dispute resolution landscape. It transforms arbitration from a mechanism primarily utilised by large commercial actors into a functional and accessible tool for small businesses, thereby advancing a more meaningful conception of access to justice within the Nigerian legal system.

REFERENCES

1. Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) Act 2003.
2. National Policy on Micro, Small and Medium Enterprises (MSME Policy Framework).
3. Companies and Allied Matters Act 2020, Section 394.
4. Arbitration and Mediation Act 2023.
5. V. Lupex v NOC(2003) 15 NWLR (Pt. 844) 469.
6. Statoil (Nig.) Ltd v NNPC(2013) 14 NWLR (Pt. 1373) 1.
7. NNPC v Fung Tai Engineering Co Ltd(2023).
8. E. Bitumen Resources v Cocean Nigeria Integrated Ltd(2024).
9. NICN Insurance v Brighthouse Estate Ltd(2025).
10. Chartered Institute of Arbitrators (Nigeria Branch), MSME Arbitration Scheme Guidelines.

Ehonghon Akhimien Esq