Annals of the University of Oradea: Economic Science (Jul 2019)
FINANCIAL DEVELOPMENT AND INCLUSIVE RURAL FINANCIAL SYSTEM IN NIGERIA
Abstract
Currently, as a result of increase in population which has put high demand on rural financial institutions for credit and savings accessibility, the market for rural finance is facing a challenge of inadequate flow of funds. The large resources required to meet this demand call for the establishment of new rural financial institutions while the existing institutions require more funds to scale-up the activities and outreach. The enormous potentials of the rural sector make sound financial development to be of priority. The priority for sound financial development hinges on effective inclusive rural financial system because it is evident that large majority of the people live in rural areas in Nigeria and more so, do not have access to financial services. This informed the need to examine the relationship between financial development and inclusive rural financial system in Nigeria. The data collected from Central Bank of Nigeria and World Bank data base from 1981 to 2017 were subjected to Vector Error Correction Model (VECM), Johansen co-integration and impulse response function methods of analysis. The results of the Johansen co-integration test show three co-integration equations which indicate evidence of long run among the variables of the study. Also, the result of the VEC indicates that FID, RLDR and RUTP equations constitute the true cointegrating equations while the others are statistically flawed. In addition, post-estimation diagnostic test shows that there is no presence of first order serial autocorrelation in the model, absence of heteroscedasticity, and the model is not normally distributed. The study concluded that access to financial markets is still limited in the rural areas as a result of lack of inclusive rural financial system in Nigeria. Therefore, the study recommended among others that it is necessary to increase the efficiency of rural financial institutions which may promote inclusive rural financial system for effective financial development.
