ABSTRACT
The study analyzed effect of financial inclusion on poverty alleviation in Nigeria using time series data spanning 27 years from 1992 to 2018. Financial inclusion was measured by a number of variables: electronic money operations, commercial banks branches, commercial banks credit to rural populace, deposits of customers in the banking sector, microfinance bank branches, microfinance banks credits and microfinance banks deposits, while poverty alleviation was measured by per capita income, being the average income in an economy divided by the population. The data analysis was carried out with the technique of autoregressive distributed lag (ARDL) since the test for stationarity revealed that the variables under consideration were of mixed integration. The ARDL bounds test revealed that financial inclusion and poverty alleviation cointegrated, that is, a long-run relationship existed among the variables under consideration. In the long-run, deposits of customers in the banking sector and microfinance bank branches were the most significant financial inclusion measures. However, the long-run coefficients showed that electronic money operations, commercial banks credit to rural populace, microfinance banks credits and microfinance banks deposits had positive effect on per capita income while commercial banks branches, deposits of customers in the banking sector and microfinance bank branches had negative effect on per capita income. In the short-run, commercial and microfinance bank branches (CBB and MCBB) had negative effect on per capita income while all other variables had a positive effect. On the other hand, all the explanatory variables were significant except commercial banks credit to rural populace, deposits of rural commercial and microfinance banks deposits. Based on these findings, the study concluded that financial inclusion was majorly transmitted through commercial and microfinance banks towards poverty alleviation. Hence, policies aimed at driving financial inclusion and poverty alleviation were recommended.
TABLE
OF CONTENTS
Title page i
Declaration ii
Certification iii
Dedication iv
Acknowledgements v
Table of
contents ` vi
List of Tables viii
List of Figures ix
Abstract x
CHAPTER 1: INTRODUCTION
1.1. Background to the Study 1
1.2 Statement of the Problem
7
1.3 Objectives of the Study
11
1.4 Research Questions 11
1.5 Hypotheses
12
1.6
Significance of the Study 12
1.7 Scope of the Study 13
1.8 Limitations of the Study 14
CHAPTER 2: REVIEW OF RELATED LITERATURE
2.1 Conceptual Framework 18
2.2. Theoretical Framework 60
2.3. Review of Related Literature 66
2.3.1 Summary of literature 73
2.3.2 Gap
in literature 74
CHAPTER 3: METHODOLOGY
3.1 Research Design 76
3.2. Sources of Data 76
3.3. Data Analysis Technique 76
3.4. Model Specification 77
3.5. Description of Model Variables 79
3.6 Estimation Techniques and Procedures 80
3.6.1 Economic criteria 80
3.6.2 Statistical criteria 81
3.6.3 Econometric criteria 81
CHAPTER 4: DATA
PRESENTATION, RESULTS AND DISCUSSIONS
4.1 Presentation of Data 82
4.2 Descriptive Statistics 89
4.3 Unit Root Tests 90
4.4 ARDL Estimation 90
CHAPTER 5: SUMMARY,
CONCLUSION AND RECOMMENDATIONS
5.1.
Summary of findings 101
5.2.
Conclusion 101
5.3.
Recommendations 102
5.4.
Contribution to Knowledge
5.5.
Suggestion for Further Studies
References 106
Appendices 114
LIST
OF TABLES
4.1: Data Presentation 82
4.2:
Descriptive Statistic 89
4.3. ADF Test Result for Unit Root 90
4.4: Bonds
Test Result 91
4.5: Long-run Estimates
92
4.6 Short-run
Estimates 93
LIST OF FIGURES
4.1: Trend
of PCI 83 4.2 Trend of EMO 83
4.3 Trend
of CBB 84
4.4 Trend
of CBCR 85
4.5 Trend
of CBDR
84
4.6 Trend
of MCBB 86
4.7 Trend
of MCBC 88
4.8 Trend
of MCBD
88
4.9 CUSUM
Test 99
4.10 CUSUM
of Squares Test 100
CHAPTER 1
INTRODUCTION
1.1
BACKGROUND OF THE STUDY
One
of the problems confronting the world is the rising case of poverty in many
nations, as many people are not earning up to $1.25 daily ((World Health Organization/United
Nations-WHO/UN 2000). The principal objectives of The Millennium Development
Goals (eight 8- goals) signed in September 2000 by 191 United Nation member nations
was to eradicate extreme poverty and hunger by the year 2015 (WHO/UN 2000).
According to Kazeem, (2018), Nigeria has become the poverty capital of the world
as more than 50% of her estimated population of over 180 million people now
live in extreme poverty (World Poverty Clock, 2018).
The
state of poverty in the world is often linked to inability to access information
about financial services because, it is either that many people lack knowledge
of the financial products and services or that the services have not been
offered or provided to them or that they are unable to afford the costs
attached to the services. They are therefore, said to be excluded.
Thorat
(2007), posited that the authorities of different member countries under the
Alliance for Financial Inclusion have shown greater interest, indicating their
concerns that a great number of the population of the world are still not
included in the formal payments system while the Financial Markets are
developing rapidly globally. In view of the seeming market failure, Financial
Sector Regulators globally are seeking to create enabling conditions towards making
the markets to become more open, create more competition, offer affordable
products and services and thereby bring inclusiveness. According to the
Alliance for Financial Inclusion, (Maya Declaration 30th September, 2011), an
estimated number of 2.3 billion people are not included in the mainstream financial services all
over the world. This factor has affected their ability to get access to
services, especially credits, as well as improve their living standards.
Nwankwo (2014), stated that financial inclusion is when
a complete set of financial products and services are provided to the low
income people in the society. Such products, which will serve their purposes
and can be provided at a reasonable cost, and which are acceptable by the users,
will include; savings, credit, insurance, payments and pensions. The products
will have the capacity of turning around the economic fortunes of the rural
poor to prosperity (Enhancing
Financial Innovation and Access- EFInA) (2013).
The concept of financial inclusion first
evolved with the foremost concept of the Co-operative Movement in India about
1904, (Kazeem, 2018). In Nigeria, the concept began around 1976, when the
Federal Government constituted a 14-Member Committee, headed by an Economist,
Dr. Pius Okigbo, (as the Chairman), to examine among other factors, the adequacy and
relevance of the Financial System and how it can cope with the demands of the
economy (Okigbo, 1976). The findings of the Committee which, among other things,
stressed on poverty and low level of economic growth as a direct result of many
people not being included in the financial process, gave rise to a number of economic
policies and reforms. These included the expansion of Commercial Bank Branches
(Rural Banking), Peoples Bank of Nigeria as well as many Poverty Alleviation
Programmes (Okoye, Adetiloye, Erim, and Modebe, 2017).
The
motivation for financial inclusion is designed at ensuring that all adult
members of the society can have financial products and services made available
to them, designed towards their specific needs and provided at reasonable
costs. According to Central Bank of Nigeria (2012) report, financial inclusion
is a process that assures the ease of access, availability and usage of the formal
financial products by all members of an economy. A key metric for measuring financial
inclusion is the ratio of banks to total population.
Soludo
(2011), opined that the ratio of banks to total population was 24,224 persons
in 2010, indicating that the level of exclusion is high. This position confirms
the observation of Enhancing Financial Innovation and Access (EFInA) 2010
survey which showed that 46.3% of Nigerians are still financially excluded.
Salathia (2014), stated that financial access is an important economic process
designed towards stimulation of growth due to its effectiveness in resource allocations
and reduction in the cost of capital. It has the capacity to improve the
day-to-day management of finances, in addition to reducing the growth of
informal and costly sources of credit (such as money lenders).
The
seeming importance of an effective financial system is determined by the
important role of finance as a feature for growth and development in any
economy. This acknowledgement, together with the fact that growth alone cannot
be feasible without finance, has encouraged an interest in financial inclusion
among the academic world, public policy makers, and regulators.
A comprehensive financial system enables
effective distribution of useful funds and this can possibly lessen the cost of
capital. Financial inclusions offers an opportunity for placing the savings of
the poor into the official financial intermediary system and station them into
investment portfolios. Furthermore, the huge amounts of little deposits give
commercial banks prospects to decrease their reliance on unpackaged deposits
and aid them to improve and succeed both in liquidity risks and asset and
liability disparities (Okoye et al, 2017).
Financial inclusion can lead to lowering
the progress of unceremonious channels of credit such as money lenders which
are seen to be costly at all times (Sarma, 2008). Financial inclusion
safeguards the deprived from the controls of informal money lenders. Persons left out from formal
financial system often depend on the informal sector to assist them with
finance and are frequently charged excessively high rates and thereby exploited.
It is due to this that the financially excluded individuals cannot have access
to credit options. Therefore, a cruel cycle of high cost of finance is
customary where an individual borrows at high costs and pays out a considerable
share of his/her income to money lenders. Thus, since the issue of poverty has
become a major problem across nations, especially the third world countries (African
countries inclusive), financial inclusion has become very imperative (Okoye et
al, 2017).
In Nigeria, successive governments have
adopted measures
to reduce or alleviate the
problem of poverty. Some of these measures include; Operation Feed the Nation
adopted by General Olusegun Obasanjo’s Administration in 1978, Green Revolution
by Shagari’s Administration in 1980s, Better Life for Rural Dwellers by General
Ibrahim Babangida, 1986 and several other Poverty Alleviation Strategies
(Onaolapo, 2015). However, despite these measures, Nigeria is yet to achieve a
satisfactory level in the welfare programmes of its citizenry and to relatively
reduce the level of poverty.
Moreover, in an attempt by Government and
Non-Governmental Organizations to review these earlier strategies, the issue of
Financial Inclusion Strategy was introduced by the Central Bank of Nigeria in
2011, as it was observed that countries that have lesser bank to person density
have posted a greater prospect of Economic Development (CBN 2012).
Microcredit, the provision of affordable
credit to people in rural areas, has for decades, become a powerful strategy
for propelling people towards earning livelihoods that secure their
subsistence, alleviating poverty and open the road to economic well-being. They
form about 75% of micro finance clients worldwide and 80% of those who live
below $1.90 a day. Micro financing has undoubtedly helped many people start new
businesses and expand them from subsistence levels, and has given many people a
greater level of economic prosperity (Brau and Woller, 2014).
Financial
inclusion is adopted worldwide as an effective policy tool used by governments
in combating and reducing poverty because it has the capacity to allocate
resources efficiently Maitinez (2011). Hence, an inclusive financial system is
now generally known as an important policy tool in many countries for economic
growth. Legislative dealings have also been initiated in many countries leading
to such monitoring frameworks in
countries like United States, France, United Kingdom, South Africa,
India etc (Brau and Woller, 2014). Countless of these regulations were designed
to improve the economic well-being of those in rural areas who should be able
to establish small businesses, and having access to wider financial services
with the capacity to increase or stabilize income and thus build resilience against economic shocks (Aduda
and Kalunda, 2012).
Nigeria
has a very high mobile penetration rate as more than 75% of the population use
mobile phones and digital services. Consumer behaviour is also tending towards
digital financial services as the value of electronic transactions increased
2.7 times since 2012. This growth has been driven by introduction of the
Cashless Policy and the resulting increase in digital banking investments by
financial services providers. While the 2012 National Financial Inclusion Strategy
(NFIS) laid out a plan to address identified gaps and other financial inclusion
needs, progress against the strategy has been mixed.
Over the past few decades, many countries
have been undertaking initiatives to prioritize financial inclusion in their financial
sector development. These policies include legislative measures (Financial
Inclusion Task Force, 2005, of the United Kingdom), Banking Sector Initiatives
(Mzansi account of South Africa), 2012 National Financial Inclusion Strategy
in Nigeria (NFIS 2012) and other alternative financial institutions (microfinance). At the global
level, the World Bank (2015), declared its strategic plan of achieving
universal financial access by 2020, given that more than an estimated two
billion adults worldwide (38 per cent) do not have basic bank accounts (Demirgüç-Kunt,
Klapper, Singer, and Oudheusden, 2015). Among these initiatives, Micro
financing or Microfinance programmes, has been receiving attention for poverty alleviation
and economic wellbeing of the people.
There are two main reasons why this is
the case. First, it has been proven to be an efficient tool in the promotion of financial
inclusion (David, 2016).
Compared with government and industry initiatives, Micro financing is good at
providing tailored financial services to unbanked people. For example, most
banks would not extend loans to those with few or no assets or collaterals.
However, it is believed that even a small amount of credit can help create job
opportunities and generate income through the Microfinance system. For example,
with more access to credit, poor households can start small businesses, such as
petty trading, farming (growing vegetables or raising piglets), etc, which
could help the family generate income and improve their wellbeing. It is this
unique feature or potential, more than anything else, which accounts for the
flourishing of Microfinance Banking on the global financial landscape (Brau and
Woller, 2014).
According to Agbelusi,
(2018), the
National Bureau of Statistics, in its 2015 report, stated that about 41.4% of the Nigeria's Gross
Domestic Products-GDP-estimated at about N39 trillion (thirty-nine trillion
naira) circulate through the informal sector, creating a negative impact on the
country's economic growth and human development index. In addition, about 23.0
million adults in Nigeria save at home. If 50.0% of these people were to save
1,000 per month with a bank or the Microfinance system, then up to N138 billion
could be incorporated into the financial system annually.
However, Rakesh, (2016), discovered that, in Nigeria, there
are vast number of people, entrepreneurs, businesses and others, who are not
included in the financial sector, which leads to their marginalization and
denial of opportunity to grow and prosper. Notwithstanding the importance of financial
inclusion as a good measure of equality and efficiency in any society, there
are many Nigerians who are still not having access to formal financial
services. According to EFInA
(2016), 34.9 million adults, who represent about 39.7% of the population, were
not included financially in 2012.
1.2
STATEMENT OF THE PROBLEM
Central
Bank of Nigeria (2012), statistics showed that 67.1% of the Nigerian populace,
were said to be living below the poverty level, even with increasing growth in
the gross domestic product-GDP-. Ironically, this increase in GDP did not
reflect a correspondent improvement in the areas of employment generation,
reduction in poverty and the general conditions of living of the citizenry.
Moreover,
a 2018 publication of the World Bank and the United Nations indicated that
Nigeria has now risen on the ladder as the nation with the highest number of
poor people, higher than India, (Kazeem, 2018; World Poverty Clock, 2018), as
more than 86 million people now live below poverty line (on less than $1.90
daily). Other publications highlighting the problem include; National Bureau of
Statistics 2019 Report, (NBS, 2020), World Bank Group 2018-2019 Global Poverty
Practice Report (World Bank Group, 2020)
The
ratio of total branches of banks to the population (bank density) of people is
considered poor in comparison with other countries (Indonesia, Pakistan, India,
Ghana, Kenya), at the same economic level as Nigeria. This disparity in growth
has resulted to the exclusion of more than 57% of the adult population of the
country (75.1 million people) from formal financial services (Onaolapo, 2015).
Although there was an increase in bank branches during the study period, the
density is still very high. This has been attributed as a basis of poverty and
poor growth within the economy.
The
year 2017 marked an important milestone for financial inclusion in Nigeria, as
the 2012 National Financial Inclusion Strategy (NFIS) was reviewed. Results
from the 2016 survey indicated that there was a constant adult inclusion rate
of 48.6 per cent from 2014 to 2016, while the general adult inclusion rate,
including those who use any type of financial services decreased by 2.1
percentage points from 60.5 to 58.4 percent during the same period (NFIS,
2018).
Furthermore,
the 2018 report of World Bank (World Bank, 2018) on financial inclusion; the
Global Findex 2017, showed that those who operate accounts with any financial
institution or mobile money providers in Nigeria stood at 40 per cent in 2017,
which represented a decrease from 44 percent account ownership in 2014. In
addition, the gap in gender relating to account ownership widened by 24
percentage points, as it was discovered that 51% of the account owners are men,
while the remaining 27 % are women. Since the strategy was launched in 2012,
Nigeria's macroeconomic and security contexts have weakened, presenting a
challenging environment to the concept to thrive (NFIS, 2018). Moreover, the
2012 strategy did not fully leverage on the capability of digital financial
services in spite of high mobile penetration rate in Nigeria (NFIS, 2018).
Nigeria has a high youth population and
adding to other factors like high poverty and unemployment rates provide a
highly challenging financial inclusion context even prior to the recession in
2016. More so, the declining oil revenue from year 2014 has negatively impacted
economic activities and household consumption and has also led to inflation
that has reduced purchasing power. Unemployment and reduced disposable income
also affected economic activities at the base of the pyramid (NFIS, 2018). The
insurgency and high level of insecurity in Nigeria have led many financial
institutions, especially banks, to close shops. Many people now kept away from
banks for security reasons (NFIS, 2018).
In Nigeria, more than 40% of adults are
financially excluded, with majority in rural areas. Amidst a growing
population, the challenge is that the high number of financially excluded
Nigerians has not abated despite regulatory interventions such as Rural Banking
to alleviate poverty in rural areas and the establishment of Community Banks
that translated to Microfinance Banks (MFBs). These institutions were not only
set up to create store of value for customers who are excluded, but also to
provide line of credit to grow their businesses. Their inability to deliver
further widened the inequality gap and worsened the challenge of financial
exclusion. Despite favourable reports regarding increase in digital operations,
the size of Commercial and Microfinance Bank Credits and expansion of Banks
Branches, Nigeria is still considered to present a worrisome figure on the
World Poverty Index.
Although
financial inclusion is regarded as a global policy agenda for sustainable
economic development, there is dearth of literature on the subject matter.
While some studies concentrated on outlook of the matter from domestic and
national levels, others concentrated on its potency in lowering poverty as well
as income inequality. These available studies have provided grounds in this
area and given key policy viewpoints on the appropriateness of the concept as a
policy tool for poverty alleviation and sustainable development.
Therefore,
the concept of financial inclusion is expected to have a robust benefit on the
national economy, by capturing more people into the financial system, repositioning
economic processes and creating a better focus for income and wealth creation
and above all stimulate poverty alleviation. It is in view of the above
problems that this research work seeks to examine the effect of financial
inclusion on poverty alleviation in Nigeria from 1992 to 2018.
1.3
OBJECTIVES OF THE STUDY
The
broad objective of this research is to examine the effect of financial inclusion
on poverty alleviation in Nigeria within the period under study (1992-2018).
The specific objectives are to:
i.
determine
the effects of electronic money operations on per capita income in Nigeria;
ii.
determine
the effects of commercial bank branches on per capita income in Nigeria;
iii.
determine
the effects of commercial bank credit to rural populace on per capita income in
Nigeria;
iv.
determine
the effect of commercial banks deposit of rural branches on per capita income in
Nigeria;
v.
determine
the effect of microfinance bank branches on per capita income in Nigeria;
vi.
determine
the effect of microfinance bank credit on per capita income in Nigeria;
vii.
determine
the effect of microfinance bank deposit on per capita income in Nigeria.
1.4
RESEARCH QUESTIONS
The
study is poised to answer the following questions;
i.
How
do electronic money operations affect per capita income in Nigeria?
ii.
To
what extent do commercial bank branches affect per capita income in Nigeria?
iii.
To
what extent do commercial bank credits to rural populace affect per capita income
in Nigeria?
iv.
How
do commercial bank deposits of rural branches affect per capita income in
Nigeria?
v.
To
what extent do microfinance bank branches affect per capita income in Nigeria?
vi.
In
what ways do microfinance bank credits affect per capita income in Nigeria?
vii.
To
what extent do microfinance bank deposits affect per capita income in Nigeria?
1.5
HYPOTHESES
The
hypotheses of the study are stated in a null form as follows:
HO1: Electronic money operations
have no significant effects on per capita income in Nigeria.
HO2: Commercial bank branches
have no significant effect on per capita income in Nigeria.
HO3: Commercial bank credits to
rural populace have no significant effect on per capita income in Nigeria
HO4: Commercial bank deposits of
rural branches have no significant effect on per capita income in Nigeria
HO5: Microfinance bank branches
have no significant effect on per capita income in Nigeria
HO6: Microfinance bank credits
have no significant effect on per capita income in Nigeria
HO7: Microfinance bank deposits
have no significant effect on per capita income in Nigeria
1.6
SIGNIFICANCE OF THE STUDY
The
study examines the effect of financial inclusion on poverty alleviation in
Nigeria for 27 years from 1992 to 2018. The findings and recommendations of the
study will be of immense benefit to the following groups and persons;
i.
To the academic community:
The
findings will contribute significantly to the academic community by initiating
researches in a way that enriches an understanding of the understudied
relationships between financial inclusion and poverty alleviation. Within the
context of low income countries, it is important to address how financial inclusion
can serve as a useful antidote to issues relating to social and economic
exclusion and inequality.
ii.
To the monetary authorities:
As a
Global Developmental Agenda, a greater knowledge of financial inclusion
relating to developing countries confronted with structural, institutional and
infrastructural constraints is important. The study therefore, will contribute
to the stock of study materials on financial inclusion, as it knits together
the various dimensions of
inclusion. The study makes a unique contribution towards a complete
understanding of how access to financial transactions and equipment translate
into expected inclusion impacts and subsequently poverty alleviation.
iii.
To policy makers:
This
study will add to the vast research on financial inclusion, and specifically, the
impact of financial inclusion on poverty alleviation in Nigeria. This, to the
best of my knowledge, happens to be one of the few studies that looked at the
linkages between financial inclusion and poverty alleviation in Nigeria within
the time period-1992 to 2018. Secondly, Development Finance and Development
Economists have a share in applying the results in fashioning out modules on
how to use financial inclusion to solve poverty related problems instead of the
continued use of the traditional modules of growth. Moreover, the results will
be useful for policymaking concerning financial development in Nigeria.
1.7
SCOPE OF THE STUDY
The
study covers the effect of financial inclusion on poverty alleviation in
Nigeria. Specifically, the study attempts to:, determine the effects of electronic
money operations on per capita income in Nigeria; determine the effects of
Commercial and Microfinance bank branches on per capita income in Nigeria;
determine the effects of Commercial and Microfinance bank deposits and also
determine the effects of Commercial and Microfinance bank credits to rural
populace on per capita income in Nigeria. The study covers the period between
1992 and 2018 (27 Years). The study chose the above years in order to examine financial
inclusion from its inception to date; which will help Economic Planners and
Monetary Authorities to take effective decisions to improve the concept.
1.8
LIMITATIONS OF THE STUDY
This
study was faced with some limitations regarding sourcing of materials, facts
and figures from various Ministries and Agencies of Government in Nigeria. It
was not easy to obtain certain particulars of the Banking Sector regarding
lending/credits, savings and branch network from the periodic returns/ reports
of the Central Bank of Nigeria and the National Bureau of Statistics. This was
however, overcome through constant visits to the Research Department and Library
of the Central Bank of Nigeria Asaba Branch. Lack of finance was another
limitation faced by the researcher during the time of conducting this research
work. The restriction of movements and activities occasioned by the corona
virus affected income generation to carry out a project like this. Despite these
limitations, the research findings of this study remain valid and reliable.
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