Financial Inclusion, Financial Stability and Efficacy of Monetary Policy in Nigeria

Baba N. Yaaba

 

Abstract

The importance of inclusive financing to inclusive growth is no more in doubt. Thus, the Central Bank of Nigeria developed a financial inclusion strategy in 2012 to reduce the percentage of adult Nigerians excluded from the formal financial services so as to enable them contribute to the growth and development of the country. This study adopts modified versions of Sarma (2012) and Nicholas and Isabel (2010) methodologies to compute composite indices of financial inclusion and financial system stability, respectively for Nigeria from 2007Q1 to 2016Q4. The study then empirically examines, using autoregressive distributed lag (ARDL) approach, the dynamic linkages among financial inclusion, financial system stability and the efficiency of monetary policy. The results show that Nigeria has made a remarkable progress in the implementation of her financial inclusion initiative and that the financial system was fairly stable during the study period. The empirical result reveals that financial inclusion enhances the effectiveness of monetary policy. The study, therefore, recommends that the CBN should continue to pursue her financial inclusion drive with all vigor so as to expand not only the coverage but also the ease and pace of accessing financial services, as it is capable of enhancing the efficiency of monetary policy.

 

Key words: Financial Inclusion, Banking System Stability, FSI, Monetary Policy, Nigeria.

JEL Classification: E52, E58, G00, G21

Financial Inclusion Financial Stability and Efficacy of Monetary Policy in Nigeria