Nigeria Financial System and Financial Inclusion

Abstract:  This study empirically investigates the relationship between Nigeria’s financial system and financial inclusion, focusing on key components such as Bank Credit to Private Sector, Stock Market Turnover Ratio, Interest Rate Spread, Ratio of Liquid Assets to Short-term Liabilities, and Inflation Rate. Employing the Autoregressive Distributed Lag (ARDL) model and Error Correction Mechanism (ECM) on data sourced from the Central Bank of Nigeria Statistical Bulletin and World Development Indicators for the period 1995–2023, the study provides robust econometric evidence. The results reveal that bank credit to the private sector and stock market liquidity significantly promote financial inclusion, while higher interest rate spreads negatively impact it. Interestingly, the inflation rate shows a positive relationship with financial inclusion, reflecting adaptive financial behaviors in response to macroeconomic instability. The diagnostic tests confirm model stability, the absence of heteroskedasticity, and the presence of a valid long-run cointegration relationship among variables. Given these findings, policymakers are recommended to enhance credit accessibility, stimulate stock market activity, reduce interest rate spreads through efficient banking reforms, and leverage financial literacy and technological innovation to improve financial inclusion and also the expansion of complete financial literacy programmes remains essential because it allows citizens to grasp financial products better and handle economic volatility with effectiveness. Future research should consider institutional and demographic dimensions to inform more inclusive financial sector policies.

Financial Inclusion, Nigeria Financial System, ARDL Model

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