FINANCIAL INCLUSION AND POVERTY IN NIGERIA

Abstract

This investigated the fundamental relationship between financial inclusion and the rate of poverty in Nigeria from 1990 to 2023. Currently, extant studies in the literature dispute on the appropriate measure of financial inclusion as most studies indiscriminately employ different financial inclusion indicators without cognizance of the dimensions of financial inclusion and components of financial systems. Financial inclusion is multidimensional and comprises two components. As such, a comprehensive measure of financial inclusion should comprise indicators that capture these aspects. Consequently, this study utilizes a novel approach, the 3x2 matrix framework in selecting appropriate indicators and uses the Principal Component Analysis as an indexing mechanism. The indicators used in constructing the index are built on dataset from the CBN Statistical Financial Bulletin. The resulting index is referred to as the Index of Financial Inclusion (IFI). The index servesas a single metric that can be used as a reliable measure of financial inclusion in Nigeria. The study then investigates the nexus between the IFI and poverty in a bid to find out if the expected relationship holds. The Autoregressive distributed Lag Model (ARDL) is used in revealing the underlying relationships between both variables. The ARDL technique discloses that the IFI has a negative but insignificant relationship with poverty rate in both the long-run and short-run estimates.