E ISSN: 2583-049X
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International Journal of Advanced Multidisciplinary Research and Studies

Volume 3, Issue 3, 2023

Effect of Financial Inclusion on Monetary Policy Fundamentals in Nigeria (1986-2021)



Author(s): Ogochukwu Florence Ngaikedi, Gideon Kasie Ezu, Ifeanyi Onyenwe Nwanna, Amalachukwu Chijindu Ananwude

Abstract:

This study examined the effect of financial inclusion on monetary policy fundamentals in Nigeria. Specifically, this study determined the effect of commercial banks savings deposit, commercial bank loans to small and medium scale enterprises, currency in circulation, number of commercial bank branches, and deposits of rural branches of commercial banks respectively on liquidity ratio, cash reserve ratio, open market operation, and loan to deposit ratio of rural branches. The study covered a time frame of thirty-six (36) years that is, from 1986 to 2021 based on available data from the Central Bank of Nigeria (CBN) Statistical Bulletin. The study employed an Ex-post facto research design with the aid of the Auto-Regressive Distributed Lag (ARDL) technique to analyse the data and anchored on the Finance-Nexus Growth Theory. The result of Granger Causality test reveals that Commercial Banks Savings Deposit (CBSD) (p-value 0.05 = 0.05) have significant effect on liquidity ratio. On the other hand, commercial bank loans to small and medium scale enterprises (p-value 0.1422 > 0.05), currency in circulation (p-value 0.1015 > 0.05), number of commercial bank branches (p-value 0.4256 > 0.05), and deposits of rural branches of commercial banks (p-value 0.9944 > 0.05) have no significant effect on liquidity ratio, cash reserve ratio, open market operation, and loan to deposit ratio of rural branches accordingly. Similarly, commercial banks savings deposit (p-value 0.0322 < 0.05) and (p-value 0.0075 < 0.05) have significant negative relationship with liquidity ratio. Commercial bank loans to small and medium scale enterprises (p-value 0.0703 > 0.05), currency in circulation (p-value 0.9168 > 0.05), and deposits of rural branches of commercial banks (p-value 0.2484 > 0.05) have positive insignificant relationship with cash reserve ratio, open market operation, and loan to deposit ratio of rural branches respectively. The Central Bank of Nigeria (CBN) should encourage Deposit Money Banks (DMBs) to develop innovative pensions/savings products to promote mobilization of short-, medium- and long-term deposits in Nigeria, based on relevant models deployed elsewhere. The CBN through the Micro, Small, and Medium Enterprises (MSME) development fund should support the commercial banks to increase their credit to Small and Medium Scale Enterprises (SMEs). The level of fund extended to SMEs reflects the level of liquidity of the banks which could aid the CBN vary the cash reserve ratio from time to time.


Keywords: Financial Inclusion, Monetary Policy Fundamentals

Pages: 107-121

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