International Journal of Research and Innovation in Social Science (IJRISS) | Volume V, Issue I, January 2021 | ISSN 2454–6186

Financial Inclusion and Economic Growth in Nigeria: An Empirical Study

Okonkwo Jisike J. and Nwanna Ifeanyi O.
Nnamdi Azikiwe University Awka, Nigeria

Abstract

The study investigates the effects of financial inclusion on economic growth in Nigeria from 1992 to 2018. Selected variables for financial inclusion include; currency outside banking, currency in circulation, microfinance banks’ deposits, number of commercial bank branches, commercial banks’ credit to private sector, loans and deposits of rural branches of commercial banks. On the other hand, nominal GDP was the selected measure of economic growth. The research design used is the ex-post facto. The study examined the relationship between the variables using regression and then examined the effects using the Grander Causality test. The results of the test revealed that currency in circulation has an insignificantly positive relationship as well as a causal effect on economic growth in Nigeria. Likewise, loans extended by rural branches of commercial banks also have a positive and significant relationship and causal effect on economic growth in Nigeria. Deposits of rural branches of commercial banks have causal effect on GDP in Nigeria and a positive relationship though not significant. The study recommends that the government and monetary authorities should ensure the promotion of banking service and the establishment of bank branches deeper in the rural areas and equally support these banks to meet the demands of these areas efficiently.

Key Words:  Financial Inclusion, Economic Growth, Sustainable Banking Principles, unbanked and non-formal banking sectors

Introduction

The standard of financial inclusion is anticipated to spur the economy into higher indices of growth and development through making funds available (and creating access) for investment and economic purposes where they are non-existent. Harnessing and accumulating these resources provides a huge source of cheap long-term investable capital (Kama and Adigun 2013). It involves the bringing together of the informal financial world into the stream of affairs.  Nwafor and Yomi,  (2018) stressed that generally, the low and middle income earners make up the largest percentage of the populace and therefore controls a huge portion of the economy’s idle fund; though, held in small volumes in the hands of each of the several million members of this group therefore, harnessing and accruing these resources offers a huge basis of cheap long-term investable capital. Most economies that have not embraced financial inclusion properly are mostly structured that a lot of funds flow in the informal sector