The Role of Financial Inclusion in Achieving Inclusive Growth in Nigeria

In my last blog post, I explained what inclusive growth is, described the problem of high poverty rate with some statistical indicators and why economic growth cannot be a sufficient condition for poverty alleviation in Nigeria. I also recommended few policies that can be implemented to hasten the fizzling out of the problem of income inequality in Nigeria.

 

My conclusion in the last post was that, prospects for poverty reduction in Nigeria rest with a comprehensive and integrated approach to tackling intra-sector and inter-sector constraints and weaknesses. I also promised based on the above that we shall be discussing financial inclusion (specifically) and economic growth and development in Nigeria in the next post. This is exactly what this particular article is aimed at discussing.

The high poverty rate in Nigeria can be partly attributive to financial exclusion. It is an undeniable fact that huge portion of the variances in long-run economic growth across countries of the world can be explained by differences in their financial sector development, performance and efficiency.

Ensuring financial inclusiveness in Nigeria is one of the main developmental challenges facing the country; financial inclusion aimed at addressing financial resource scarcity and inaccessibility hampering economic growth to ensure broad-based benefits of economic growth in the orbit of rising inequality, high levels of unemployment, extreme poverty, and unsustainable human development or welfare in Nigeria.

The services provided by financial markets and intermediaries exert a first-order impact on the rate of long-run economic growth of every country. Economic growth fosters development through financial inclusion; on the other hand, financial inclusion enhances wealth creation, tackles poverty, improves welfare and general standard of living, and consequently economic growth and development.

The financial system in Nigeria have over the years played terrific role in economic growth as well as at the same time facilitated and promoted financial exclusion through the lending policies of  money deposit banks and micro-finance banks who preferred borrowing to some sectors off the economy considered to be less risky than others.

Analysis of the survey on a study conducted by Central Bank in 2014 to know if there has been a shift in the preference of banks with regards to borrowing to investors following bank consolidation exercise of 2004/2005 ranked oil and gas sector as the most preferred sector. The ranking was followed by trading and telecommunication, manufacturing services, construction, imports, agriculture, exports and solid minerals in their other of descending magnitude. 

We can obviously see where agriculture sector employing about 70% of the working population mostly made up of rural subsistence farmers is located in the ranking and the reason why financial inclusiveness is emphasized a catalyst for achieving inclusive growth in Nigeria. To therefore ensure financial inclusiveness in Nigeria, all efforts must be made to include the about 70% of the rural dwellers and every groups alike.

Financial inclusion in Nigeria will increase savings; savings contribute to higher economic growth. Countries with higher saving rates have the tendency to grow at a faster rate than those with low saving rates; this is why economic policies that promote savings and consequently investments are important for Nigeria.

Bank account for example does not only provide the account holder to a safer means of keeping funds but it also provide access to use of other low cost and convenient means of transactions like mobile and internet banking channels e.g fund transfer, utility bill payment, tax payment etc.

Financial inclusion also will help facilitate the implementation of the Treasury Single Account (TSA) policy, thus, reducing financial leakages and increasing efficiency in the country’s administration.

Once access to financial services improves, inclusion as seen above will afford several benefits to the consumer, regulator and the economy as a whole.

Financial inclusion is regarded as an important means of ensuring that economic growth performance is inclusive. Recent survey suggests that access to financial services have a direct relationship with innovation and productivity. Financial development can increasingly impart growth of smaller firms which constitutes largely the priority sector in Nigeria economy.

The United Nation defined the goals of financial inclusion as: access at a reasonable cost for all households to a full range of financial services, including savings or deposit services, payment and transfer services, credit and insurance; sound and safe institutions governed by clear regulation and industry performance standards; financial and institutional sustainability, to ensure continuity and certainty of investment.

Financial market imperfections are some of the key constraints to inclusive or pro poor growth in Nigeria. Public policies that are directed towards correcting these market failures are essential to ensure financial development and contribution to economic growth and poverty reduction in Nigeria.

An inclusive financial system enables the efficient allocation of productive resources and in the process reducing the cost of capital. The global pursuit of financial inclusion as a vehicle for economic development has a positive effect, adult Nigerians with access to payment services is expected to increase from 21.6% in 2010 to 70% in 2020, while those with access to savings should increase from 24% to 60%; and credit from 2% to 40%, pensions from 5% to 40% and insurance from 1% to 40% within the same period.

The channels for delivering the above financial services were equally targeted to improve. Money deposit bank branches are targeted to increase from 6.8 units per 100,000 adults in 2010 to 7.6 units per 100,000 adults in 2020. Microfinance bank branches are to increase from 2.9 units to 5.5 units. Others are ATMs points are to increase from 11.8 units to 203.6 units, Point of Sales (POS) to increase from 13.3 units to 850 units and Mobile agents from 0 to 62 units, all per 100,000 adults between 2010 and 2020.

Empirical findings of recent study show that financial inclusion significantly imparts Nigerian economic growth. The study concluded that there is a strong and direct relationship between the number of borrowers and the real Gross Domestic Product (GDP) in Nigeria. This implies in other words that accessibility to loans in commercial banks boosted investment and economic growth during the period.

It is therefore recommended that the Central Bank of Nigeria (CBN) should increase it speed in pursuing financial inclusion to the next level in order to reach the unbanked at the grassroots. Also, more awareness and enlightenment of the populace should continue on the benefits of Banks’ Verification Number (BVN).

Financial inclusiveness can play a significant role in moderating the impact of external shocks on the domestic economy of Nigeria especially as a country whose main source of revenue and foreign exchange is determined by the international crude oil price and which is currently witnessing dwindling revenue from export of crude oil.

Financial inclusion is a necessary condition for a sustainable and equitable economic growth. It provides an avenue for bringing the savings of the poor into the formal financial system where surplus spenders and deficit spenders are brought together for the purpose of channelling the same to investment projects for returns in the form of interest to the poor.

The large number of low cost deposits from financial inclusion will also offer banks an opportunity to reduce their dependence on bulk deposits, manage both liquidity risks and asset-liability imbalances more efficiently for optimum performance.

Financial inclusion in Nigeria will also no doubt help in reducing income inequality between the rich and the poor as the poor are expected to have better access to credit to finance their investments.

The role of financial inclusion in inclusive growth in Nigeria is too important to be underutilized, it is therefore very necessary that every possible effort should be made to facilitate maximum inclusion in the sector in order for the country to speedily achieve it economic growth and development objectives.