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The impact of microfinance on financial inclusion in Nigeria

Author

Listed:
  • Ogechi Adeola
  • Olaniyi Evans

    (Pan-Atlantic University, Nigeria
    University of Lagos, Nigeria)

Abstract

Many attempts have been made throughout history to establish institutions for supplying credit to the poor. In Nigeria, strategies to increase the income of the poor have existed in the form of rotating contributory savings schemes (referred to as Esusu, Itutu, Adashi, Bambam and Ajo in different parts of the country). However, in recent years, microfinance has become a veritable institutional mechanism for enhancing credit access for low-income groups. With the increasing number of microfinance banks in Nigeria and the mounting drive for inclusive financial systems, therefore, it would be worthwhile to assess the impact of microfinance on financial inclusion in the country. To achieve this objective, this study uses the fully modified OLS (FMOLS) and the Dynamic OLS (DOLS) which were designed to provide optimal estimates of cointegrating regressions. The benefit of using the two approaches was to effectively assess the robustness of the parameter estimates to different specifications. This study, therefore, employs annual data of total commercial banks’ loans and advances, number of microfinance banks in Nigeria, and gross domestic product (GDP) as well as lending interest rates for the 1981–2014 period. The study found that microfinance and financial inclusion are linked by a set of long-run relationships. In the short run, the study found that microfinance has a positive but insignificant impact on financial inclusion, but in the long run, microfinance has a positive and statistically significant impact on the level of financial inclusion. The negative interest rate has a statistically significant impact on the level of financial inclusion both in the short and long run. Therefore, this study has established that microfinance, as well as interest rates, is a significant driver of financial inclusion in Nigeria. To increase financial inclusion in Nigeria, heightened drives for microfinance will be required. Microfinance represents a vehicle for the promotion of financial inclusion in Nigeria and should remain at the core of the pursuit of financial participation across all income levels.

Suggested Citation

  • Ogechi Adeola & Olaniyi Evans, 2017. "The impact of microfinance on financial inclusion in Nigeria," Journal of Developing Areas, Tennessee State University, College of Business, vol. 51(4), pages 193-206, October-D.
    • Handle: RePEc:jda:journl:vol.51:year:2017:issue4:pp:193-206
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    Citations

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    Cited by:

    1. Md Aslam Mia & Sunil Sangwan & A. H. M. Belayeth Hussain & Nurhafiza Abdul Kader Malim, 2022. "Rural–urban financial inclusion: Implications on the cost sustainability of microfinance lenders," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(6), pages 1899-1911, September.
    2. Evans Olaniyi, 2017. "Back to the Land: The Impact of Financial Inclusion on Agriculture in Nigeria," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 21(4), pages 885-903, Autumn.
    3. Ahmed Idi Kato, 2023. "Unlocking the Potential of Microfinance Solutions on Urban Woman Entrepreneurship Development in East Africa: A Bibliometric Analysis Perspective," Sustainability, MDPI, vol. 15(20), pages 1-22, October.
    4. Chukwunonso Ekesiobi & Stephen Obinozie Ogwu & Joshua Chukwuma Onwe & Ogonna Ifebi & Precious Muhammed Emmanuel & Kingsley Nze Ashibogwu, 2024. "Energy Efficiency Investment in a Developing Economy: Financial Development and Debt Status Implication," Working Papers 24/016, European Xtramile Centre of African Studies (EXCAS).
    5. Abiola Ayopo BABAJIDE & Funso Abiodun OKUNLOLA & Adedoyin Isola LAWAL & Victoria Bosede AKINJARE & Bukola Bose LAWAL-ADEDOYIN, 2021. "Financial Inclusion: Implication on Per Capita Income in Nigeria," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 11(8), pages 603-617, August.
    6. Evans, Olaniyi, 2021. "The Curious Case of Petro-Monetary Transmission Mechanism in Oil-Producing Countries: An Analysis of the Effect of Oil Price on Inflation in Nigeria," MPRA Paper 118198, University Library of Munich, Germany.

    More about this item

    Keywords

    Microfinance; financial inclusion; interest rate; banks; FMOLS; DOLS;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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