Abstract
Financial inclusion is currently hot topic in policy spheres because of its potency in encouraging economic growth. And because it improves the sensitivity of aggregate demand to interest rate it has been argued to be useful for the success of monetary policy. However, little attention has been devoted to computing the exact effect of financial inclusion on monetary policy. This paper presents a simple model showing the impact of financial inclusion on monetary policy in Nigeria between 1980 and 2012. The result of the study supports the notion that growing financial inclusion would improve the effectiveness of monetary policy. However, the coefficient of the number of bank branches has the wrong sign and this is explained by the fact that, in opening branches, banks mainly pursue profits but not financial inclusion which is a policy objective, so that there are clusters of branches which are under-utilized while numerous locations which are considered not favourable for balance sheets are under-branched. Key words: Financial inclusion, monetary policy, economic.
Highlights
There is currently high energy activity by policy makers in pursuing financial inclusion
Given the enormous advantages which come with financial inclusion and the desire of the Central Bank of Nigeria to advance financial inclusion, it is imperative that it is discussed in the plainest of languages in order to broaden the debate, not about the usefulness of financial inclusion as that is taken for granted; khan (2011) says that the pursuit of financial inclusion is not just a policy option but is compulsory; it is about the various workable strategies to accelerate its rate of reach, and deepen the acceptability of such policies and strategies
The aim of this paper is to evaluate the impact of financial inclusion on the effectiveness of monetary policy in Nigeria and lays emphasis on the role of financial inclusion in transmitting monetary policy impulses to achieve the objective of monetary policy
Summary
There is currently high energy activity by policy makers in pursuing financial inclusion. This is because it has been shown that countries with higher degrees of financial inclusion tend to post higher economic growth. According to Khan (2011), “empirical evidence indicates a distinct rise in income level of the countries with higher number of branches and deposits of commercial banks and higher number of bank branches per 100,000 adults and more number of deposit accounts per 1000 adults is observed in high income countries than countries in the low and middle income countries”. At the micro level of the economy increasing financial inclusion portends so many positive developments with respect to improving the growth rate of the economy. Given the enormous advantages which come with financial inclusion and the desire of the Central Bank of Nigeria to advance financial inclusion, it is imperative that it (financial inclusion) is discussed in the plainest of languages in order to broaden the debate, not about the usefulness of financial inclusion as that is taken for granted; khan (2011) says that the pursuit of financial inclusion is not just a policy option but is compulsory; it is about the various workable strategies to accelerate its rate of reach, and deepen the acceptability of such policies and strategies
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