Financial Inclusion and Poverty Alleviation in Nigeria

Abstract

Financial inclusion provides access to financial services for all, helping reduce poverty, while exclusion may occur voluntarily or due to barriers like low income, risk, or discrimination. This study examined the long-run and short-run effect of financial inclusion on poverty alleviation in Nigeria from 1992 to 2023. The data for this study were mainly sourced from Central Bank of Nigeria (CBN) statistical bulletin and utilized the Auto-Regressive Distributed Lag (ARDL) model for its estimations. The findings indicated a significant and positive relationship between several financial inclusion variables and poverty reduction in the long run. Specifically, the long-run results showed that an increase in the number of commercial bank branches had a diminishing but significant impact on the poverty rate. Similarly, higher deposit mobilization by banks in rural areas, loans granted under the agricultural credit guarantee scheme, and increased commercial bank credit to small and medium-sized enterprises (SMEs) all led to a significant decline in the poverty rate. However, microfinance banks' loans were found to have a negative but insignificant impact on poverty alleviation in the long run. The short-run analysis revealed mixed results across the different variables. The study concluded that various financial inclusion initiatives, particularly those targeting rural areas, agriculture, and SMEs, are effective tools for long-term poverty alleviation in Nigeria.