Microfinance Banking and Financial Inclusion in Nigeria

Abstract

The study examined the influence of microfinance banking on financial inclusion in Nigeria from 2006 to 2021.  The precise goals are to: examine the relationship between microfinance banks’ interest rate and financial inclusion in Nigeria; examine if the number of microfinance bank branches affect financial inclusion in Nigeria in Nigeria; Ascertain if the number of depositors with microfinance banks affect financial inclusion in Nigeria and, determine the impact Microfinance bank assets have on financial inclusion in Nigeria

Financial inclusion as the dependent variable was measured using bank loans to rural areas and deposits from rural areas. While microfinance banking was measured with microfinance bank interest rate, number of microfinance bank branches, number of depositors with microfinance banks and microfinance bank assets. The error correction model was used in the empirical analysis. To ensure stationarity of variables, the Augmented Dickey Fuller (ADF) test was utilized. The reliability of the results was ensured by the Engle and Granger tests, which determined if the residuals of cointegration are stationary

Findings showed that financial inclusion in Nigeria is positively impacted by microfinance banking. Particularly, bank loans to rural areas and deposits from rural areas are significantly impacted by microfinance banks’ interest rates. The number of microfinance branches has a favourable impact on bank loans to rural areas, but a negative impact on deposits from rural areas. It was discovered that the number of depositors has a favourable impact on bank loans to rural areas and deposits from rural areas. It was shown that bank loans to rural areas and deposits from rural areas were significantly impacted by microfinance assets. The study recommends that government should keep a close eye on the activities of microfinance banks and regulate the interest rates that they charge in order to avoid charging exorbitant rates. Nigeria’s attempts to promote financial inclusion will benefit from microfinance banks’ efforts to increase their asset base. It is also essential to modernize the banking infrastructure in rural areas if we want to give more people access to financial services.