Financial Inclusion and Rural Poverty Reduction: Evidence from Nigeria

Abstract

Studies have strengthened the importance of financial development as a veritable tool for poverty reduction. This study contributed to the existing literature by examining the effect of financial inclusion on poverty reduction in Nigerian rural communities using data from 1996-2013. Data sourced from Central bank of Nigeria (CBN), National Bureau of Statistics and World Bank data base were analyzed using Autoregressive Distributed Lag Modeling (ARDL). Bound test results showed that there was a long-run relationship among the variables. Both short and long run relationship confirmed the importance of financial inclusion as a suitable strategy for poverty reduction in rural communities. The finding of this paper has a clear-cut policy implication. As the beneficial effect of financial inclusion on rural poverty reduction is dampened or even cancelled out by cost of borrowing and degree of financial openness, the policy package must take into account the risk of interest charged by banks and financial exposure or openness of rural communities in Nigeria. This is because the levels of financial literacy are often low in rural areas. This does not allow people to understand financial services they have around them which may serve as an opportunity for banks to be exploited. The paper also recommended that monetary authorities should drive rural financial inclusion in the country.

Keywords: Financial inclusion, rural areas, poverty reduction, ARDL/Bound test, Nigeria