Implications Of Digital Currency On Financial Inclusion In Nigeria

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Implications Of Digital Currency On Financial Inclusion In Nigeria


This study aims to empirically investigate the effect of digital currency on financial inclusion in Nigeria for the period. Nigeria undertook her digital currency development to rip the benefits of financial inclusion, safer remittances and exchange rate regularization among others. In view of this, the researcher seeks to assess the impact of digital currency on financial inclusion in Nigeria. The study utilized the total number of automated teller machines, point of sale devices and internet banking operation in Nigeria to represent electronic banking for the period under review. The study used Statistical Package for Social Study with the aid of linear regression analysis. The finding revealed that both internet banking and automated teller machines have insignificant impact on financial inclusion while the point of sale devices significantly impact financial inclusion in Nigeria. Based on the findings as revealed by the study, it is recommended that all the deposit money banks in Nigeria should work on the challenges that hinder the successful operation of automated teller machines and internet banking and strive to meet international best practice. Moreover, the number of point of sales should be increase and made available with easy accessibility to the users.

Table of Content

Chapter One:


  • 1.1 Background of the Study
  • 1.2 Statement of the Problem
  • 1.3 Objective of the Study
  • 1.4 Research Questions
  • 1.5 Research Hypothesis
  • 1.6 Significance of the Study
  • 1.7 Scope of the Study
  • 1.8 Limitation of the Study
  • 1.9 Definition of Terms
  • 1.10 Organization of the Study

Chapter Two:

Review of Literature

  • 2.1 Conceptual Framework
  • 2.2 Theoretical Framework
  • 2.3 Empirical Review

Chapter Three:

Research Methodology

  • 3.1 Introduction
  • 3.2 Research Design
  • 3.3 Population of Study
  • 3.4 Type and Source of Data
  • 3.5 Definition of Variables
  • 3.6 Model Specification
  • 3.7 Method of Data Analysis

Chapter Four:

Data Presentation and Analysis

  • 4.1 Introduction
  • 4.2 Presentation of Descriptive Statistics
  • 4.3 Test of Hypothesis
  • 4.4 Discussion of Findings

Chapter Five:

Summary, Conclusions and Recommendations

  • 5.1 Introduction
  • 5.2 Summary
  • 5.3 Conclusion
  • 5.4 Recommendations
  • References

Chapter One


1.1 Background to the Study

In this 21st century, financial inclusion is a well-recognized global issue. It is estimated that at present, about 1.7 billion people are underbanked, and about 2.3 billion adults are financially excluded, while small- and medium-sized businesses face challenges connecting with the financial system. Financial users may not be able to access financial services, and, if they can, those services may not be high quality, suitable or affordable (Rhyne, 2020; World Economic Forum, 2021). These cases may be particularly worrisome for developing economies whose structural makeup and social and economic disposition has created equally social and economic inequality and accelerated the level of poverty in these regions to a level beyond accurate description. For instance, Nigeria is one of the regions in Sub-Saharan Africa with a highly unbanked population. It is estimated that over 60% of her over 206.1 million population are excluded from the banking system (Global Finance, 2021). This is not surprising given that currency outside the banking system continues to rise year on year and citizens tends to be comfortable living their lives without any noticeable relationship with the banking system. Currency outside the banking system grew by more than 50% between 2015 and 2020 from 1.46 trillion naira to 2.3 trillion naira, respectively. This moved the year on year growth rate from 12% in 2016 to 25% in 2020 Central Bank of Nigeria (CBN), 2021. Attributed to two episodes of currency depreciation of 2016 and 2020, whose effect is shown in rising inflation, this has caused many Nigerians to be further drifted away from financial inclusion services.

The quest for digital currency or digital finances is a drive towards redesigning the financial system which is citizens friendly and inclusive. As Yuhelson et al. (2020) shows, the utilization of digital currency through an authorized e-cash guarantors has the capacity of widening the entrance and capacity for individuals in financially included activities across boundaries. This was the case in India where, between 2014 and 2018, the growth rate of formal financial users rose from 52.8% to 79.8% as a result of digital financial payments (Mobile Solutions Technical Assistance and Research (mSTAR), 2019). We can then appreciate why developed and developing countries are on their toes for digital currency development in recent times.

There are many reasons why digital currency consideration for financial inclusion is necessary. For one thing, the global community glamour for poverty reduction is on the increase. The United Nations for instance had proposed that by 2030, the world is expected to be on track to end poverty. However, far from being realized, the COVID 19 pandemic has pushed more than 82.9 million people into extreme poverty (as of 2019) and by 2022, over 100.9 million will be poor in Nigeria, and over 3 billion people lacked the basic necessity (notably effective hand washing facilities) to mitigate the impact of COVID 19 around the globe, thereby implying that more and more people will sink below the poverty line by the end of 2025 (World Economic Forum, 2021; Irvin et al., 2021; World Bank, 2021).

Digital currency for financial inclusion is expected to accelerate the economic recovery of the poor, both rural and urban post-COVID 19. Second, financial inclusion has been globally accepted as a tool for sustainable development. Of the 17 sustainable development goals globally accepted as the blueprint for a better and sustainable tomorrow, financial inclusion is identified as a catalyst for attaining 7 of these goals (World Bank, 2018). Interestingly, Goal 9 that discusses sustainable issues in industry, innovation and infrastructure identified investment in critical infrastructures as key enables for tomorrowโ€™s development. Here lies the development power of financial innovation in digital currencies for accelerated financial inclusion for not just the equitable distribution of wealth for shared prosperity but also for social inclusion, justice and security-all seen as present global challenges. Already, to put things in the right perspective, a group of developed economies, the G20 had reaffirmed their interest in implementing high-level principles for global financial inclusion, aimed at advancing global access to finance. Third, financial exclusion undermines the quality of life of the citizens and hold the nationsโ€™ economies back. Clearly, economies with low financial inclusion produce declining growth.

Small- and medium-scale businesses that are financially excluded find it challenging to make timely business plans and productions to meet the market demand. Therefore, economies contemplating faster growth should first think of getting citizens to access financial rights. As Demirguc-Kunt and Klapper (2012) put it, without inclusive financial systems, poor people are left to rely on their own limited savings for investment and small enterprises will rely on their limited earnings to pursue promising growth opportunities. This will contribute to consistent income inequality occasion around the world and slower economic growth.

The saving money framework has seen some major monetary developments in the previous decade and in addition ventures to advance budgetary incorporation (Korir et al., 2015). The managing an account segment in Nigeria is all around created and energetic, while access to credit has been supported over the previous decade by the coming of portable and organization saving money (KPMG, 2014). A study by Kamau (2011) investigated the intermediation effectiveness and profitability in the keeping money segment in the post-advancement period in Nigeria and reasoned that banks in can enhance execution by enhancing their innovation, aptitudes and developing their size of operations to be completely productive. In addition, Korir et al. (2015) analyzed the impact of budgetary developments on monetary execution of business banks in Nigeria utilizing optional information and built up that there was a solid relationship between money related advancements and monetary execution.

1.2 Statement of the Problem

Digital financial services furnish people with more noteworthy comfort, protection and improved security contrasted with saving money at home or carrying the money (Villasenor, Darrell and Lewis, 2015). However, the provision of digital finance involves the participation of different players such as banks/financial institutions, mobile network operators, financial technology providers, regulators, agents, chains of retailers and clients. The interaction of these actors and the conditions of the regulatory environment and market archetype pose complexities to all participants (Arenaza, 2014) thus negating their role in financial inclusion. Digital finance mechanisms also require a foundation of dependable and productive bases to make the services user-friendly, secure, and cost-effective manner (World Bank, 2015).

In Africa, Nigeria has spearheaded an intriguing procedure of money related consideration through jumping to cell telephone installment arrangements (Hannig and Jansen, 2010). As per M’Amanja (2015), Nigeria has grasped money related advancement to improve scope, decrease exchanges cost e.g. electronic cash exchanges, operator managing an account, and credit reference authorities. Be that as it may, in Nigeria just a little extent of exchanges are made through advanced means due to customer trust, platform integration and interoperability issues of replacing paper with virtual currency (Parada & Greta, 2014). As such, although its contributions of digital currency in financial inclusion have been documented, the concept of digital finance is still in its infancy in Nigeria. Thus, the need to explore the impact of computerized money on monetary consideration in the keeping money area in Nigeria.

Additionally, several scholars have also explored the concepts of digital finance and deepening financial inclusion. A study by Buckley and Malady (2015) concluded that digital financial administrations in developing markets experiences constrained uptake and use thus; they may have little effect on financial inclusion. In another study by Nwanne (2015) on the relationship between monetary consideration and financial development in Nigerian country occupants found that the manageability of money related incorporation to rustic inhabitants in Nigeria was the standard for monetary development and economy can’t develop quickly without appropriate execution of budgetary consideration to provincial zones in Nigeria. Karpowicz (2014) found that bringing down imperatives on insurance guarantees higher development while money related avoidance can be handled through measures that lower the monetary interest cost.

A study in Nigeria by Njoku (2013) on the effects of economic creativity in the banking sector in Nigeria found that innovations had improved the monetary policy environment and proportion of the unbanked population had declined. A study by Kenyoru (2013) examined the link between financial innovations and financial extending in Nigeria and inferred that money related development had an immaterial positive effect on budgetary developing. Based on the reviewed studies it evident that most studies focus more on financial innovations and its impact on the banking sectors hence there no conclusive study on digital finance and deepening financial inclusion. Henceforth the inquiry: what is the implications of digital currency on financial inclusion in Nigeria?

1.3 Objective of the Study

The overall objective of the study is to determine the implications of digital currency on financial inclusion in Nigeria. The specific objectives include the following:

  1. To ascertain the effect of internet banking on financial inclusion in Nigeria.
  2. To examine the effect of Automated Teller Machines on financial inclusion in Nigeria.
  3. To assess the impact of Point of Sales on financial inclusion in Nigeria.

1.4 Research Questions

From the aforementioned objectives, the following research questions are formulated.

  1. What is the effect of internet banking on financial inclusion in Nigeria?
  2. What is the effect of Automated Teller Machines on financial inclusion in Nigeria?
  3. What the impact of Point of Sales on financial inclusion in Nigeria?

1.5 Research Hypothesis:

The study tested the following the following hypotheses:

HO1: Internet banking has no significant effect on financial inclusion in Nigeria.

HO2: Automated Teller Machines has no significant effect on financial inclusion in Nigeria.

HO3: Point of Sales has no significant effect on financial inclusion in Nigeria.

1.6 Significance of the Study

The study will provide current empirical evidence on the relationship between digital currency and financial inclusion in Nigeria, thereby contributing significantly to the body of knowledge. The research will also be helpful as a reference material for other researchers who chose to write on the subject matter.

Furthermore, the findings of this study will assist the government and its agencies particularly the Central Bank of Nigeria in policy formulation and implementation on the unbanked population. The study will also provide a guide on moral suasion and directives to deposit money banks to enhance financial inclusion through financial technology.

1.7 Scope of the Study

The focus of this study is on implications of digital currency on financial inclusion in Nigeria. The study is a time series study covering the period from 2018 to 2021. This includes the most current data available on the variables understudied. Furthermore, the range of the years ensures the provision of sufficient data for the tool of analysis chosen.

In this work, digital currency is proxies using internet banking, Automated Teller Machines and Point of Sales while financial inclusion is estimated using the number of banked people.

1.8 Limitation of the Study

In the course of carrying out this study, the researcher experienced some constraints, which included time constraints, financial constraints, and adequate availability of data. However, the researcher were able to manage these just to ensure the success of this study.

1.9 Definition of Terms

Digital Currency:

Digital currency is any currency, money, or money-like asset that is primarily managed, stored or exchanged on digital computer systems, especially over the internet. Types of digital currencies include cryptocurrency, virtual currency and central bank digital currency.

Financial Inclusion:

Financial inclusion is defined as the availability and equality of opportunities to access financial services. It refers to a process by which individuals and businesses can access appropriate, affordable, and timely financial products and services. These include banking, loan, equity, and insurance products.

1.10 Organization of the Study

This research work is organized in five chapters, for easy understanding, as follows.

  • Chapter one is concern with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study.
  • Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature.
  • Chapter three deals on the research design and methodology adopted in the study.
  • Chapter four concentrate on the data collection and analysis and presentation of finding.
  • Chapter five gives summary, conclusion, and recommendations made of the study.

Chapter Five

Summary, Recommendation and Conclusion

5.1 Introduction

Indeed, banks in Nigeria are facing serious challenge on different level of operation and that is why, the ability to incorporate the some of the Digital currencies to enhance financial inclusion has not been achieved at fullest. This section of the study is able to summarize, thereby making useful conclusions and possible recommendations.

5.2 Summary of the Study

Although there are bodies of existing literature that connect the digital currency and financial inclusion but lack that actual relationship among the dual. This study shows that not all explanatory variables employed were no capable enough to explain the effect of digital currency in financial inclusion.

The summary of the findings is as follows:

  1. The Internet Banking over the period of the study has no significant effect on Financial Inclusion
  2. The number of automated teller machines within the period cover in this study did not has significant effect on the financial inclusion.
  3. The number of Point of Sales within the period cover in this study has positive and significant effect on the financial inclusion.

5.3 Conclusion

The target of every government across the globe particularly underdeveloped and developing nation is to achieve the financial inclusion. Financial inclusion is term as a key element to drive the economic growth and development and this is what called for this research as an area of interest. In my addition to the existing knowledge in this subject matter, the study seek to find out which of the variables of digital currency that drive the financial inclusion in Nigeria. As such the study discovered that positive relationship exist between the digital currency and financial inclusion particularly the contribution of Point of Sales as a driver of financial inclusion is commendable. The other two variables such as Automated Teller Machine and Internet Banking are facing major challenges thereby hindering their contribution to financial inclusion in Nigeria.

5.4 Recommendations

Following the specific objectives outline in this study, the following have been recommended for system improvement.

  1. Effort should be made by the government through the network provider to improve in networking for effective uses of internet banking. There should be a campaign by the banks to their customers to educate them on how to use the services.
  2. The policy maker should design a strategy toward enhancing the automated teller machines in term of its availability not only the cities also in the rural areas, improve on its networking and its ability to dispense different Naira denomination.
  3. The campaign on the uses and the convenience of digital currency for transaction should be intensify by the regulators since it is capable to drive the financial inclusion.
  4. As such Point of Sale instrument have been found to be significant to drive the financial inclusion, the Central Bank of Nigeria should make it more accessible to all businesses in Nigeria.

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