Effects of Financial Inclusion on Economic Growth in Nigeria
Authors: Sophia UMOZURIKE Chika , Adesina Prof. Ganiyat , Joshua CHIADIKOBI Obiakarije 
Published: August 2023

Abstract
1.0 Background to the Study
Financial inclusion is expected to increase the growth and development of the system by making sure that funds are accessible economic and investment purposes in the areas they don’t exist. Harnessing and accumulating these resources provide a huge source of cheap long term investable capital, Kama and Adigun (2013). The informal financial world is brought together through this process. The idle fund of the economy is mostly controlled by the low and middle income earners, because they have the highest percentage on it.
Most economies that have not embraced financial inclusion properly are mostly structured that a lot of funds flow in the informal sector which is detrimental to society and the individual, Kazeem (2017). According to Akhil (2016), financial inclusion is defined as delivery of financial services to the poor at affordable cost while ElSaid, Emara, and Pearlman (2020) posit that financial inclusion means access to, and use of financial products and services by house-holds or firms which is one of the main, albeit challenging priorities in Emerging Markets (EMs), and a key factor for financial development. Financial inclusion, development and economic growth are inter-woven and inter-connected. We take Financial inclusion to be a way of tackling poverty and inequality, and a way to bring about sustainable development goals. Abbas and Atanda (2019) buttressed by suggesting that the strength of scholarly submissions lies in the fact that financial inclusion is in-fact, very imperative for the growth process of any economy including Nigeria because as more individuals are brought or captured into the formal financial system, it will help ensure proper planning and decision making by policy makers.
Financial inclusion can only be achieved when formal financial services can be easily accessed, when financial services and products can be used in a comprehensive way, when financial products are set up in a way it suits the people and can easily be purchased by low-income earners without any difficulty (NFIS2018). Abbas and Atanda(2019) stated that a review of most scholarly submissions highlight the fact that the purpose of financial inclusion is to improve economic growth by increasing the economic well-being of people at the base of the pyramid and unbanked by availing them affordable financial services at a reasonable cost.
Financial approach is a crucial instrument the government employs in restoring economic growth due to its capacity to speed up a well-structured allotment of fecund resources, thereby minimizing the cost of capital. Pearlman (2020) takes financial inclusion to be the process in which various households and firms have access to financial goods and services, which has been one of the major challenges in the market and is one of the major factors that aids financial growth. Financial inclusion, economic growth and development are literally connected to each other. It has been proven that a proper financial service encourages small business activities and household welfare. Financial inclusion is an effort to make financial products and services accessible and affordable to all individuals and businesses, regardless of their personal net worth or company size, Mitchell Grant (2020).
According to Onaolapo (2015), it is an exclusive financing system as it to a great level improves the daily activities pertaining the management of finances, and as well as reduces the growth of non-formal sources of credit such as money lenders, which are often found to be manipulative or exploitative. It is the channel through which funds are moved consecutively from excess economic units to deficit units for the purpose of investment.
Recently, financial inclusion seems to be very important because of its obvious pre-eminence in driving the economy. The efficiency of financial system is very important for an economy to work properly. Nzotta (2004) believes that the financial system is saddled with the duty of directing resources to the most lucrative sectors of any economy. This can include making loans available to both private and public sectors to use for investment which is tailored towards the increase of national output and advancement of agricultural output, export trade, and supplying infrastructure. Several economists have varying opinions as regards the financial sector in the economic development. Levine (2006) assumes that the operation of the financial sector purely responds to economic development, adjustment to varying demands from the real sector and is therefore overstated.
Financial system plays a general part in reducing market resistances, in the process affecting investment decisions, savings rate, long-run growth rates and technological innovations. Financial inclusion can be an instance where order of providers provides financial services, which mostly involves the private sector, to be able to spread to the persons that need them. We can just say it’s a system that has an impact on everyone in the country. It is also perceived as the delivery of financial services to affordable cost to some disadvantaged and low- income segment of the economy, Harley, Adegoke and Adegbola (2017).
Lately, expository development policies have been shouldered by financial inclusion, especially those in the less developed countries. Sharma (2015) implies that a lot of people in the world have already been left out from formal financial services and we have a likely loss of funds that can be invested, funds that can be deposited or saved, loss of the world economic capacity to create wealth. The largest percentage of the population is made up by low-and middle-income earners making them to control a large part of the idle funds in the economy, even though the million members of this group hold them in small volumes, obtaining these assets creates basis of low-cost long-term investible funds.
According to The Enhancing Financial Innovation and Access, the state of Nigeria’s financial inclusion as of 2020 is that the amount of youths that have access to financial services exceeds average, meaning that the population of adults using liquid money which is a part of monetary service is 51%, in 2018, banks, ATMs, etc, exceeds 49%. This being as a result of increase in banking as of 2020, leading to 45% population of Nigeria being banked, having 45% of women and 56% of men using financial services. Even though financial inclusion has grown in the past decade, the target for 2020 was not still met. The target was for 70% of Nigerians to be financially included by 2020, but the actual figure met was 51%, and 64% by the end of 2020, meaning that 36% of the adult or 38 million adult population were excluded financially and deprived of access to financial services in Nigeria in the year 2020, which involves 55% of women and 44% of men being financially excluded. During that time, the numbers of adult in the rural areas that was deprived of financial services, who do not have formal banking services were 78.5%. To appreciate the benefits financial inclusion creates as a tool of economic development and growth, policies has already been tried out and implemented. The acceptance of the rural banking project during the 1970’s was an example of the important projects and policies held by the government of Nigeria, which was geared to promote financial inclusion, especially the project that the central bank launched in 1997 to achieve less, one bank branch in all the localities in Nigeria. The project needed commercial banks to set up branches in the rural area. The things expected from the rural banking program is for it to help in achieving change from the provision of platforms that will be able to deploy savings from the rural area which will lead to the availability of enough credit that will help to grow both the small and medium size industry and entrepreneurs and also encourage banking in the rural area and generally increase steady growth and minimize rural urban migration.
According to Kazeem(2021), the desire to make financial services available at a cheaper cost has received a global attention as of recent due to its significant importance in economic development. Its efficiency is very important for an economy to work properly. The focus of scholars/researchers working on financial inclusion is to seek for a way to make everyone financially inclusive, especially those in the African countries like Nigeria. The global focus is to take away the obstacles such as gender, education, irregular income, age, geographical location, and regulations that have led to the difficulty in accessing financial inclusion globally.
The challenge of financial inclusion is because of high poverty level in Nigeria. Sanusi (2011) suggested that realizing an optimal level of financial inclusion in Nigeria implies empowering 70.0 percent of the population living below poverty level which will in turn boost growth and development by engendering multiple economic activities, causing growth in national productivity and automatically decreasing poverty. People are linked to banks with essential benefit when they are financially included. Creating access to a well-functioning financial system, by giving equal opportunities enables economically and socially excluded persons to assimilate in to the economy and keenly contribute to economic development, thereby helping the financial system carry out its task in engendering inclusive development because it’s included in the major challenges faced by developing economies Chee-Keong and Sok-Gee (2010)
Establishing an account relationship can open the means for the customer to benefit from a variety of financial product, which are not only standardized but also delivered by credible regulated institutions to certify the security of the investment and can also be used for several purposes like making small value remittances at low cost and credit purchases, Mohan (2006). This is to say that, owning an account gives the account holder the opportunity to very easy and cheap means of transaction. Also due to its transparency in the movement of transaction, compliance and checking is made easy for the regular user and also the economy as a whole in the aspect transparent and easy accumulation of capital. In other words, Mohan (2006) still insist that the distinctive gateway of a banking account can be used for quite a lot of purposes and denotes a valuable condition for all the economic entities in the country.
Financial inclusion also has an adverse effect, which is to bring down the scale of activities in the economy that can easily be assisted, thereby reducing the potentials for high growth in the economy. Because of this, it is important that the economic and social concerns like affordability of goods, worth of access, outreach to people excluded and sustainability are being considered. Financial inclusion increases the capacity of less privileged to save, borrow and make payments during their lifetime, which is not part of the regular form of financial intermediation, Onaolopa (2020). A lot of things are being handles by financial inclusion, and some of them are money transfer facilities, saving goods that suit the flow of cash pattern in impoverished homes, fundamental no ruff account to pay and receive payments, insurance, saving, etc.
Access to financial services allows the poor to save money outside the house safely and helps in alleviating the risks faced by the poor as a consequence of economic shocks, Wahiba and Weriemmi (2014). Making available financial services has now become a concern to every policy maker because its absence has a social and economic implication. Financial inclusion has therefore become an explicit strategy for accelerated economic growth, and it’s considered to be critical for achieving inclusive growth in a country, Karlan, Ratan and Zinman (2014). This realization in the recent past was the major impetus for the adoption of policies and measures aimed at growing global financial inclusion as a means of promoting world economic prosperity, Lusardi and Mitchell (2004).
According to Kazeem(2021), the desire to make financial services available at a cheaper cost has received a global attention as of recent due to its significant importance in economic development. As regards to a World Bank Report, we had approximately 1.7 billion adults that are externally excluded in Nigeria as of 2017, and they represent 31% of every adult globally that lacked access to diverse investments, saving possibility, low-cost payment structure, credit options etc. Financial inclusion is an increasing worry that has caused limited financial soundness and security for households and low-income earners in developing countries and also increasing income inequalities in countries that are already developed. However, the nature of the challenges varies among countries.
Babajide, Adegboye, &Omankhalen (2020), Sharma and Jisha & Varghese (2019), all agreed that economic growth would be achieved faster if the whole population can be able to access the financial services. Financial services, creates an opportunity for the poor to save outside the house safety, as well as encourage reduction of risk that the poor faces on a daily. Financial inclusion has turned out to be a way forward to economic growth and it’s very important for achieving inclusive growth in a country. This was the major reason for adoption of measures and policies that is geared towards rising global financial inclusion as a way of encouraging world economic prosperity, MechrotraetAl (2009).
The financial system was recognized globally to help boost economic development of nations. It also helps in allocations and mobilization of savings for the industry’s use. It has been established in the literature that a financial system in which banks are its main components offers links for the diverse sectors of the economy and buoys a high level of specialization, expertise, economies of scale and a promising environment for the execution of numerous government policies, such as an, exchange rate stability, balance of payments equilibrium and full employment, Sanusi (2011). Financial process also known as an inclusive financing system can meaningfully improve the day-to-day management of finances, as well as diminish the growth of informal sources of credit (such as money lenders), which are often found to be unfair, Martinez (2011).
Countries with commendable creativities from financial regulators, banking industry, government etc, call inclusive financial system policy importance. Some countries have also initiated Legislative dealings which have led to monetary frame works in countries like United Kingdom, United States, South Africa, France etc. A lot of these regulatory frame works were made to improve the economic well-being of people with low-income. The achievement of financial inclusion has always been a global challenge where about 54% of adults worldwide are financially excluded. It is more apparent in developing countries where we have almost 70% financially excluded individuals. The Consultative group conducted the 2010 financial survey in a bid to aid the Poor (CGAP/World Bank), and to bring to light the low figure in majority of the Sub-Saharan Africa and South Asia compared to other high-income countries that have higher figures in banked households.
Since the year 2005, there have been additional initiatives like non-interest banking, National Microfinance policy, electronic banking, financial literacy campaign, cashless policy, etc, that enabled financial service increase from 23.6% in 2008 to 48.6 in 2014. The Central Bank of Nigerian has been supporting projects geared towards low-income earners and financially excluded population. The government on the other hand has concentrated more on intrusive arrangements concerning finance, establishing institutions and frame works that encourage financial inclusion (CBN, National Financial Conclusion, 2012).