FINANCIAL INCLUSION AND ECONOMIC GROWTH IN NIGERIA

Financial development is not simply a result of economic growth; it is also the driver of economic growth. Financial inclusion (FI), a feature of financial development, is a process that marks improvement in quantity, quality, and efficiency of financial intermediary services. It generates local savings, which increase productive investments in local businesses. This paper investigated the impact of FI on economic growth in Nigeria. It aimed to highlight the determinants of FI and its impact on economic growth. Secondary data were sourced from world development indicators and ordinary least square regression model was used to analyze the data. The result shows that FI is a significant determinant of the total factor of production, as well as capital per worker, which invariably determines the final level of output in the economy. This study recommends that natural and economic resources should be adequately harnessed, as alternative means of revitalization and diversification of Nigeria’s oil-dependent mono-cultural economy.

 

INTRODUCTION

Financial  inclusion  despite  being  a  contemporary  issue  has  gained  global attention in extant  literature especially in the field  of development finance due to  its  ability to drive and sustain economic growth and development. The presence of financial exclusion which is  evidenced  with the presence of  several unbanked millions  globally has  led  to  a  myriad  of  consequences  on  the  development  of  every  economy.  Such consequences which cannot be undermined include the loss of several deposits, savings and investible funds needed to be channelled into credit creation for development and productive purposes in the economy.  It is widely known that  every  economic  system thrives  on its access to funds to finance its activities,  as such, financial inclusion has proved  to  be  a  veritable  tool  to  provide  several  rural  communities  and  emerging economies with enough resources for economic  development. Sanusi (2011) identified financial exclusion as the major reason behind the high rate of poverty bedeviling the society; this is because economic independence for all can only be achieved when all are exposed to the veracity of the financial system.  In Nigeria, where agriculture that is one of the major sectors of the economy sits in the rural areas, it is highly probable that the exclusion of such areas would have led to the existence of the bulk of revenue and funds as  “shadow money”, that is, money outside the sphere of the formally regulated financial system. Consequent on this, rural areas  in the country have remained  rural while urban areas  within  the  sphere of  the financial system  have  evolved  to  become  more  developed. In  response  to  this,  the Central Bank of Nigeria in the pursuit of eradicating financial exclusion developed certain goals and strategies to induce inclusion. Prominent among them include the proposed increase  in  adult  Nigerians  accessible to  payment  services  from  21.6 percent  to  70 percent in the year 2020 with the increase in ATM per units, bank branches  per adults as  well  as  increase  in  mobile  money  agents  (CBN,  2016).  Also,  in  2019,  the  CBN established the NIRSAL microfinance bank to further strengthen the course of financial inclusion in the country. However, despite such activities by the CBN, Nigeria as at 2015 still  ranked 135  among  176  countries  on  the  financial  inclusion index (Cyn-Young  & Rogelio, 2015) while the aggregate financial inclusion rate for the country was estimated at  63.2  percent  in  2019  (CBN,  2019).  This  implies  that  Nigeria  still  performs  below expectations  as  regards  financial  inclusion  and  as  such,  an  evidence  of  a  largely unbanked population mostly in the rural areas.  In extant literature, there exist certain contributions about the subject matter in Nigeria with the absence of consensus on the subject matter as some studies such as Harley-Tega, Adetoso and  Adegbola  (2017), Ezenwakwelu  (2018)  and Enueshike  and Okpebru (2020) discovered  no relationship between  financial inclusion  and  economic growth  while  Okoye,  Adetiloye,  Erin  and  Modebe  (2017),  Jiakponna  (2017)  and Onaolapo (2015) among others revealed otherwise. However, such divergence in result may be attributed to the different measures  used to capture financial inclusion in  the various  studies.  Thus,  this  study  focuses  on  the  foremost  inclusion  variables  made available  by  the  monetary  authorities  in  the  nation.  These  variables,  which  include number of bank branches,  loans to and deposits from rural  areas, were considered in the study as they capture the accessibility of rural and poor people to financial services in bank branches as well as loans and deposit financial systems.  Furthermore, previous studies failed to determine the causal relationship between growth and inclusion as to whether inclusion drives growth or the other way round.  Therefore, this study seeks to contribute  to  extant  literature  on  the  influence  of  financial  inclusion  on  economic growth in Nigeria while as a step beyond previous studies; it seeks to examine the causal relationship between financial inclusion and economic growth premised on the paucity of contributions in this regard as it seeks to answer the question: does financial inclusion drive economic growth?

 

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