Financial Inclusion as a Poverty Reduction Strategy: Evidence from Nigeria (2000 2022)

Abstract

This study investigates the impact of financial inclusion on poverty reduction in Nigeria from 2000 to 2022, focusing on three dimensions: availability (FSA), penetration (FSP), and usability (FSU) of financial services. Globally, an estimated 1.4 billion adults remain unbanked, and Sub-Saharan Africa—where Nigeria is the largest economy—accounts for a disproportionate share of this exclusion. In Africa, financial exclusion rates exceed 50% of the adult population in many economies, constraining household welfare and inhibiting inclusive growth. In Nigeria specifically, over 45% of adults are financially excluded, coinciding with a poverty headcount ratio that reached 40.1% by 2022. Using annual time-series data sourced from the Central Bank of Nigeria Annual Statistical Bulletin and World Bank Development Indicators, the study employs the Johansen Cointegration approach and the Vector Error Correction Model (VECM) to examine both long-run and short-run dynamics. The results reveal that both financial services availability and penetration exert a significant positive long run effect on poverty alleviation, indicating that expanding banking access and broadening financial reach reduce poverty over time. Financial services usability demonstrates a significant negative long-run relationship with poverty, suggesting that enhanced practical utilisation of financial services independently contributes to poverty reduction. In the short run, financial services availability significantly reduces poverty, while the error correction term confirms adjustment towards long-run equilibrium at a speed of 4.1% per period. These findings highlight the multifaceted nature of financial inclusion and also ensuring their effective utilisation by the poor.