THE IMPACT OF MONETARY POLICY ON FINANCIAL INCLUSION IN NIGERIA (1981-2016)

Despite the recent growth in financial sector and the fact that countries around the world have successfully used their monetary policies to drive their financial inclusion initiatives, many individuals are still excluded from access to formal financial services in Nigeria. This study analyzed the impact of monetary policy indicators on financial inclusion in Nigeria (1981-2016). The time series data used for the study were gathered through secondary sources from the Central Bank of Nigeria, The Global Findex, The IMF Financial Access Survey (FAS), and World Bank's Global Payment Survey. Data were collected on financial inclusion indices such as total deposit of rural banks, total loans of rural banks, total number of commercial bank branches, number of Automated Teller Machines (ATM) per 100,000 adults, the ratio of money supply to gross domestic product. Data were also collected on Monetary Policy Transmission Channels as Money Supply, Monetary Policy Rate, Liquidity Ratio and Prime Lending Rate. Multiple Regression and Cointegration and Error Correction Model were used to analyze the relationship between monetary policy transmission mechanisms and financial inclusion indices and also investigate the monetary policy indicator affecting financial inclusion most during the period under survey. Findings revealed significant relationships between money supply and total loan of rural banks, a number of bank branches, and the number of ATMs per 100,000 adults. The regressed standard errors were very low and the coefficient of multiple determination (R2) was 0.56. The result of the effect of monetary policy on financial inclusion showed an adjusted R2 of 0.51 and Durbin Watson was 1.6; The t statistics of the coefficient of Money Supply (MP2) was 5.55 and that of Liquidity Ratio (MP3) was 5.91; Also liquidity ratio was the monetary policy variable that affected financial inclusion most during the period under review. Based on the outcome of this study, we recommended among others that Central Bank of Nigeria (CBN) should introduce adoption of differentiated liquidity ratio for banks with more rural branches as a way of encouraging the deposit money banks that are promoting financial inclusion.