power point on financial inclusion and intermediation

1. SEMINAR ON:
FINANCIAL INCLUSION,BANK INTERMEDIATION AN ECONOMIC GROWTH IN NIGERIA
BY:
OMUBO-PEPPLE STELLA NATHAN
PG.2020/00527
Submitted To: Prof. J. C. Imegi
November, 2022

2. ABSTRACT
• This seminar paper presents the conceptual, theoretical and empirical review on financial inclusion, bank
intermediation and economic growth which offered some insights on the finance for growth hypothesis. The conceptual
framework deepened the understanding of the concepts of financial inclusion, bank intermediation and economic
growth. Prior to the review of the empirical literature, the theoretical framework was provided, with a focus on the
theory of financial intermediation, underlying theories of financial inclusion and economic growth. A body of previous
studies on the growth effects of financial inclusion and bank intermediation was reviewed. However, despite the
popularity of the finance for growth hypothesis, there are some controversies in the existing empirical literature which
created a gap in literature on the effectiveness of financial inclusion and bank intermediation in promoting economic
growth. Thus, this study sets out to fill this gap by employing a wider range of indicators that capture the
multidimensional aspect of financial inclusion and intermediation and how they affect economic growth in Nigeria.

3. INTRODUCTION
• Achieving sustainable economic growth has remained a fundamental macroeconomic objective in Nigeria and
other developing economies. This is because economic growth, which defines the monetary value of final
output of goods and services, has been identified as a powerful tool for reducing poverty and improving the
quality of life in developing countries.
• It has been preoccupation of the policymakers to promote economic growth through the formulation and
implementation of various policies. Notably, the role financial inclusion and bank intermediation play in
promoting economic growth has been exemplified in body of finance literature.
• It is expected to boost economic growth and development by making funds available for investment and
lubricating the economy. Nwafor and Yomi (2018) posit that financial inclusion is imperative for improved
financial access which spurs the economy into higher growth due to its ability to expedite efficient allocation of
productive resources.
• Aside from financial inclusion, financial intermediation has received widespread recognition as important
driver of economic growth. Odedokun (1998) posits that financial intermediation drives economic growth by
providing a pathway for linking lenders and borrowers to establish a financial transaction.

4. AIM AND OBJECTIVES
• This study seeks to examine the effect of financial inclusion and bank intermediation on economic growth in
Nigeria. However, the specific objectives are to:
• determine the effect of financial service usage on economic growth in Nigeria;
• examine the effect of financial service access on economic growth in Nigeria;
• ascertain the effect of the ratio of the broad money supply to GDP on economic growth in Nigeria;
• ascertain the effect of the ratio of credit to the private sector on economic growth in Nigeria; and
• determine causality between financial inclusion and bank intermediation on economic growth in Nigeria.

5. CONCEPTUAL FRAMEWORK
• Financial inclusion: Financial inclusion defines the provision of access to financial services to all members of population
particularly the poor and the other excluded members of the population. Dev (2006) posits that financial inclusion involves the
delivery of banking services at an affordable cost to the vast sections of the disadvantaged and low-income groups.
• Bank interemediation: Financial intermediation defines a system of channeling funds from lenders (economic surplus unit) to
borrowers (economic deficit unit) through financial institutions. It also involves the transformation of mobilized deposits
liabilities by financial intermediaries such as banks into bank assets or credits such as loan and overdraft.
• Economic growth: Economic growth is generally referred to as a quantitative change in economic variables, normally
persisting over successive periods. it is determined by tavailability of natural resources, the rate of capital formation, capital-
output ratio, technological progress, dynamic entrepreneurship and other factors.

6. THEORETICAL FRAMEWORK
• THEORY FINANCIAL INTERMEDIATION:The financial intermediation theory was proposed by Gurley and Shaw (1960). The theory is based on the
assumption of asymmetry information between surplus and deficit spenders. Thus, information asymmetry is assumed to exist due to informational
difference between the lenders of funds and the borrowers.
• PUBLIC GOODS THEORY OF FINANCIAL INCLUSION: Samuelson (1954) propounded the public good theory of financial inclusion, and it’s
based on the assumption that the (i) delivery of formal financial services to the entire population and (ii) ensuring that there is unrestricted access to
finance for everyone should be treated as a public good for the benefit of all members of the population. Individuals cannot be barred from using
formal financial services as a public good, and individuals cannot be barred from gaining access to financial services.
• THE DISSATISFACTION THEORY OF FINANCIAL INCLUSION;he dissatisfaction theory of financial inclusion was proposed by Herzberg,
Mausner, and Snyderman (1959), and it is based on the assumption that financial inclusion activities and programmes in a country should first be
targeted to all individuals who were previously on-boarded into the formal financial sector but left the formal financial sector because they were
dissatisfied with the rules of engagement in the formal financial sector, or had other unfavourable personal experiences from dealing with firms and
agents in the formal financial sector.
• VULNERABLE GROUP THEORY OF FINANCIAL INCLUSION: The vulnerable group theory of financial inclusion was propounded by
Fineman (2008) and it is based on the assumption that financial inclusion activities or programmes in a country should be targeted at the most
vulnerable members of society, such as poor people, young people, women, and elderly people, who suffer the most from economic hardship and
crises.
• SYSTEMS THEORY OF FINANCIAL INCLUSION :The systems theory of financial inclusion was proposed by the biologist von Bertalanffy (1950)
and furthered by Ashby (1958). It is based on the assumption that financial inclusion outcomes are achieved through the existing sub-systems
(whether economic, social, or financial systems) that financial inclusion relies on, and that, as a result, greater financial inclusion will have positive
benefits for the systems it relies on.COMMUNITY ECHELON THEORY OF FINANCIAL INCLUSION:The theory of community echelon was
propounded by Hambrick and Mason (1984), and it was based on the assumption that financial inclusion should be delivered to the financially-
excluded population through their communal leaders. Based on the assumptions, the community echelon theory argues that community leaders are
influential in their communities and can use their influence to encourage or persuade community members to participate in the formal financial
sector.

7. EMPIRICAL LITERATURE
• Oluwasogo, Princess, Oluwatoyin and Folasade (2017) examined the effect of financial intermediation on economic growth in Nigeria. The study period covered between 1980
and 2014. The unit root test was carried out using the Augmented Dickey-fuller and Philip-Perron tests in order to confirm the stationarity of the data, then the Johansen co-
integration test was used to estimate the long run relationship between the dependent and independent variables in this study. The Vector Error Correction Model (VECM) test
was conducted. The result showed that financial intermediation has a long-run relationship with economic growth in Nigeria. Thus, the study recommended that the regulatory
authorities such as CBN having obtained knowledge from this research work on the impact of financial intermediation on economic growth should encourage and enhance the
activities of financial intermediaries.
• Kim, Yu and Hassan (2018) examined how financial inclusion contributed to economic growth in 55 Organization of Islamic Cooperation (OIC) countries. The study employed
panel data for each of the selected 55 OIC countries. The method of data analysis include dynamic panel estimation, panel vector autoregressive (VAR), impulse response
functions (IRFs), and panel Granger causality tests. The results of dynamic panel estimations revealed that financial inclusion has a positive effect on economic growth.
• Nwafor (2018) investigated the relationship between financial inclusion and economic growth in Nigeria. The corresponding data spanning from 2001 to 2016 were obtained and
tested using Two-staged Least Squares Regression method. The findings revealed that financial inclusion have significant impact on economic growth in Nigeria and that financial
industry intermediation have not influenced financial inclusion within the period under review. Based on the findings, the study recommended that Nigerian banks should develop
financial products to reach the financially excluded regions of the country as this will increase GDP per capital of Nigeria and consequently economic growth
• Monsura and Villaruz (2021) analyzed the effect of financial intermediation on economic growth and the existence of cointegrating relationship using time-series data from 1986
to 2015. The influence of financial intermediation in terms of bank credit to bank deposit ratio, private credit, and stock market capitalization and time trend to economic growth
was estimated using ordinary least squares (OLS) multiple regression. The results showed that all the financial intermediation indicators and time trend exerted significant effect
on GDP per capita. The positive sign of the time trend indicates that there is an upward trend in GDP per capita averaging approximately 0.06 percent annually. Furthermore, the
cointegration test using the Johansen procedure revealed that there is a evidence of long-term equilibrium relationship between financial intermediation and economic growth, and
rules out spurious regression results.
• Younass(2022) explored the impact of the financial inclusion and size of the shadow economy on the economic growth of developing economies over the period 2008–2017. The
data for the endogenous, exogenous and control variables were collected from the World Development Indicators, the International Monetary Fund's (IMF) Financial Access
Survey (FAS) and Medina and Schneider's global database (2019). The study applied a panel ordinary least square (OLS) fixed effect, a two-step difference generalised method of
moments (GMM) and panel Granger causality approach. The results revealed that financial inclusion has a positive and statistically significant impact on economic growth

8. This study sets out to fill the gaps in the existing literature. Unlike
previous studies, this study shall improve on the later studies by
employing a wider range of indicators that capture the multidimensional
aspect of financial inclusion and intermediation in Nigeria which cut
across financial service usage and accessibility as well as the overall
process of financial intermediation in Nigeria.
In addition, this study shall employ a representative of the sub-sectoral
and compositional aspects of economic growth with a focus on
agriculture, industrial and service sectors GDP which are distinct from the
previous studies reviewed. This shall make improvement to previous
studies and deepen the understanding of the distribution growth
implications of financial inclusion and intermediation across various
sectors of the Nigerian economy.
LITERATURE GAP

9. CONCLUSION
• The role of financial inclusion and bank intermediation in boosting economic growth has remained at
the epicenter of contemporary research in finance. This has continued to attract the attention of
policymakers and researchers alike.
• While some of the previous studies revealed that financial inclusion is important for economic growth,
others found no evidence to justify the hypothesis of finance for development. In addition, evidence of
positive contributions of bank intermediation to economic growth was also established in some later
studies while other studies indicate that bank intermediation does not promote economic growth.
• The controversies surrounding the later studies have raised concern on the effectiveness of the growth
implications of financial inclusion and bank intermediation, thus creating a gap in literature. In view of
the foregoing, this study shall examine how financial inclusion and bank intermediation affects
economic growth in Nigeria.