Effect of financial inclusion on household consumption in Nigeria

الملخص EN

The recent awareness of the important role of finance in economic growth, development and poverty reduction has stimulated interests of policy makers and other stakeholders in increasing financial access to vast majority of the people.

Although there are several studies that investigate the effects of financial inclusion on households both at macro and micro levels, few studies focus on its impact on welfare of the poor and how to move them out of poverty.

It is noteworthy that there is evidence of voluntary exclusion from the banking system in Nigeria, with some individuals shunning conventional banking system due to the prohibition of interest in Islam.

Based on the data of Living Standards and Demographic survey of 2012-2013, this paper investigates the effect of financial inclusion on the households’ welfare through consumption in Nigeria.

The study employs the approach of panel data to analyze the effects of financial inclusion on household consumption, controlling for the endogeneity of the financial inclusion itself.

The paper finds that access to finance has a positive impact on households’ consumption.

This has implication for policy makers and practitioners to provide access to finance for poverty reduction in the country.

Similarly, in addition to increasing the financial resources available for financing SMEs and households, Islamic finance could be useful in improving access to finance by attracting the voluntarily excluded segment of the population by offering them an alternative form of banking.