1.1 Background to the study
The Central Bank of Nigeria (CBN) adopted the National Financial Inclusion Strategy (NFIS) in 2012. The Key performance indicators were defined, based on the various dimensions of financial inclusion, including access, usage, affordability, appropriateness, financial literacy, consumer protection and gender.
The traditional idea of financial inclusion is the provision of access to and usage of diverse, convenient, affordable financial services. Access to and use of financial services is one of the major drivers of economic growth. Financial Inclusion covers sustainable, relevant, cost – effective and meaningful financial services for the financially underserved population especially rural dwellers (Nwanne, S2015). The issue of access to financial services for the rural dwellers in every country in terms of development, poverty reduction, decent work and economic empowerment has received growing attention from scholars and policy makers as it concern financial inclusion. In Banking and Finance area, financial inclusion can be seen as the delivery of financial services at affordable costs to so many disadvantaged and low income segment of the economy, in contrast to financial exclusion where those services are not available or affordable. Enhancing Financial Innovation and Access (EFInA2013) define financial inclusion as the provision of a broad range of high quality financial products such as savings, credit, insurance, payments and pensions, which are relevant, appropriate and affordable for the entire adult population especially the low income segments of the economy.
The concept of financial inclusion was introduced in the early 2000s and its source could be traced to a research finding which stressed poverty and low level of economic growth as a direct result of financial exclusion. The motivation for financial inclusion is designed at ensuring all adult members of the society have easy access to extensive financial products, personalized towards their needs and provided at reasonable costs. Such products include payments, savings, credit, insurance and pensions affordable for the entire adult population especially the low-income segments of the economy. The endogenous growth model highlights the role of finance. A developed financial system widens access to funds and reduces their cost, broadens economic activities and hence increases output. The merits of an inclusive financial system are efficient allocation of productive resources, reduction of the cost of capital, improvement in the day-to-day management of finances and reduction of informal sources of credit (Sarma & Pais, 2008).Entrepreneurship has been the mainstay of most developing nations’ economies. It accounts for about 70 percent of full-time employment, 33 percent of national income and about 40 percent of African countries’ total export earnings, Agriculture precisely. (Otsuka, Larson & Hazel, 2013). However, small scale farming and enterprises contributes to the national objective of employment opportunities creation and income generation by providing a source of livelihood for the majority of low-income households in Nigeria. Despite these significant roles played by the sector, the rural traders have, over the years, experienced many constraints that have limited the achievement of their full potentials. The major challenge facing these entrepreneurs is lack of and limited financial Inclusion. Credit is, no doubt, the important instruments that can enable small-scale farmers and enterprises overcome their liquidity constraint, but lack of acceptable collateral and procedural bureaucracies of credit borrowing that also affects the timing of the credit are some of the constraints the small scale enterprises and farmers face in accessing credit from the formal institutions.
It is noteworthy that while financial access and usage may be essential for output, the financial sector may not provide the much-needed financing because of the lack of acceptable collateral, credit monitoring, and the high cost of credit assessment. Financial access is not synonymous with financial usage (Beck & Demirguc-Kunt, 2008). The users consist of those who can access the financial system or decide to opt out for some reason. The non-users consist of the unbankable that do not have enough income or are too risky, those discriminated on religious, social, or ethnic grounds and those whose reach is too costly. In other words, access to finance is the ability of individuals or businesses to obtain financial services while financial usage is the ability to use financial services. While financial access and financial usage are accepted measures of financial inclusion, financial usage is a better measure. Financial inclusion goes beyond simply having access to the traditional financial products such as credit, payments, savings and insurance; it extends to both the depth and breadth of usage, yet access is a first step to inclusion. This study therefore uses both access to financial services and usage of financial services as measures of inclusion of bank customers.
1.2 Statement of the problem
According to Mohan (2006) a vast number of people, potential entrepreneurs, small enterprises and others, are excluded from the financial sector, which leads to their marginalisation and denial of opportunity for them to grow and prosper. Despite the acknowledgement of the importance of financial inclusion for efficiency and equality in any country, many Nigerians are unbanked and still lack access to formal financial services. In 2012, according to Enhancing Financial Innovation & Access (EFInA) 34.9 million adults representing 39.7% of the adult population were financially excluded. Only 28.6 million adults were banked, representing 32.5% of the adult population. Billions of Naira circulates through the informal sector, and this has a negative impact on the country’s economic growth and development. 23.0 million Adults save at home. If 50.0% of these people were to save N1,000 per month with a bank, then up to N138 billion could be incorporated into the formal financial sector every year” (EFInA, 2016, p. 1). According to Oluba, (2008), Millions of adult Nigerians do not have any kind of dealing with financial institutions even at the community banking. The Nigerian banking survey states that more than 53% of Nigerian adults lack access to finance. Only 6% of the adult population uses a microfinance bank. Santiago, Edward, Gardner and Philip (2005) cited in Oluba (2008) noted that the access to financial services in developing countries is limited and it would be useful to provide wider access to those services as it can be helpful to reduce the volume of currency outside the banks and also enhance the development and use of financial products. The Nigerian banking system has gone through various reforms. Nigeria has the fastest growing banking system in Africa. The success of the financial sector reforms and consolidation in the banking industry is very critical because like the UK financial system, the sector plays a catalytic role in the economy yet a larger percentage of its customer base has not been able to benefit of these new trend in the sector through various financial services.
Although numerous studies are available on financial inclusion as well as utilization of various banking services, two fundamental gaps exist in the literature. First, there is little empirical evidence available on impact of financial inclusion on utilization of economic services by bank customers. Two, a huge part of the literature on financial inclusion has been devoted to its measurement and promotion, to the detriment of the empirical evaluation of its impacts. In fact, in the case of Nigeria, empirical evidence is scarce and little data is obtainable for any significant insights for policy direction. Additionally, analysing financial access and usage in a single study will provide insight on whether there are any differences in their impacts on the economy as well as the sectors and show the reasons why the results might be different.
1.3 Objectives of the study
The main objective of this study is to investigate into the impact of financial inclusion on existing and potential bank customers in Nigeria. The specific objectives include:
To determine if the socioeconomic characteristics of the bank customers significantly affect their financial inclusion
To determine the significant relationship between credit accessibility and utilization of financial services by bank customers.
To examine the level of financial education and the utilization of various financial services by existing and potential bank customers in Nigeria
To identify the constraints militating against utilization of financial services by existing and potential bank customers in Nigeria.
1.4 Research questions
The following research questions were formulated by the researcher to aid achieve the objective of this study, there include:
- What are the socioeconomic characteristics of the bank customers in relationship with financial inclusion?
- What is the relationship between credit accessibility and utilization of financial services by bank customers in Nigeria?
- What is the relationship between financial education and utilization of financial services by existing and potential bank customers in Nigeria?
- What are the factors militating against utilization of financial services by existing and potential bank customers in Nigeria?