Microfinancial inclusion nexus poverty alleviation: the case of Nigeria

Purpose - This research examines the long-run relationship between microfinancial inclusion and poverty alleviation in Nigeria from 1990 to 2018. Design/methodology/approach - the Engle–Granger two-step co-integration and autoregressive distributed lag (ARDL) techniques. Gross domestic product (GDP) per capita proxies poverty reduction. Number of microfinance banks, borrowers of microfinance institutions, commercial bank branches, commercial bank loan to small-scale businesses and broad money supply ratio measure microfinancial inclusion. Findings - The results indicate a long-run relationship between microfinancial inclusion and poverty reduction. The error correction model reveals that microfinancial inclusion and poverty alleviation converge to long-run equilibrium. The number of microfinance banks, lagged value of borrowed funds and broad money supply negatively influences poverty while the lagged values of number of microfinance banks and broad money supply positively influence poverty. Research limitations/implications - Effective ways to improve microcredit channels and liquidity flow to the poor through a microfinance bank's intermediation should be promoted by the Central Bank of Nigeria (CBN) using an aggressive policy, which provides access to credit to the poor. Practical implications - Theoretically, microfinance institutions should increase credit to the poor, especially in rural areas at moderate cost. This study further suggests that many microfinance bank branches should be located in urban and rural areas targeting the poor. Social implications - Microfinancial inclusion reduces population's poverty in Nigeria and globally. Originality/value - Contrary to other studies, this paper utilizes number of microfinance institutions and borrowers of microfinance institutions to examine the relationship between microfinancial inclusion and poverty alleviation in Nigeria.