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It's very difficult (ie: impossible) to target individual nerve fibres with induction. Direct stimulation is the only way to achieve the required resolution.

see also, MEG

I don't know the answer to your question, but I appreciate the "no-brainer" pun there.

Bio-compatibility issues are not intractable. We know about many biomaterials that the body doesn't have a strong adverse reaction to. I'm sure people are developing materials that are both conductive and bio-compatible.

The amount of current required for magnetic stimulation is much higher and not compatible with implantable devices. TMS requires large coils and currents relative to electrical stimulation.

Isn't TMS coil current high to compensate the distance? The closer to the nerve ending should reduce the necessary current.

But if those nerve endings are anywhere but at the surface of the body, they'll still require an implant.