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EFFECT OF NATIONAL FINANCIAL INCLUSION STRATEGY ON BANK ACCOUNT OWNERSHIP IN KUDAN LOCAL GOVERNMENT AREA OF KADUNA STATE
ABSTRACT
The rural populace constitute an integral part of Nigeria‟s population, as such any national economic programme that attempts in any way to foreclose this important segment of the country‟s population will leave much to be desired. This study therefore evaluated the effect of the National Financial Inclusion Strategy (NFIS) on Bank Account Ownership in Kudan Local Government Area of Kaduna State. Survey research design was employed in the study which was cross sectional in nature. The study made use of primary data which was collected using questionnaires administered to the respondents based on a census sampling technique. The data was collected from a total of 187 out of a population of 194 households of the minor settlements of the local government. Descriptive and inferential (parametric) statistics were used to analyse the data collected for the study using the Statistical Package for Social Sciences (SPSS) version 20. Multiple regression tool of analysis was used to test the study‟s hypotheses. The findings revealed that the NFIS microfinance banks‟ branches target have a significant positive effect on bank account ownership among the rural populace of the local government. On the other hand, the financial literacy target and savings target of the programme have insignificant positive effect on bank account ownership among the rural populace of the study area (KudanLocal Government Area of Kaduna State). The study therefore recommended that the CBN should continue to pursue the implementation strategy of the microfinance banks‟ branches target in the rural areas as it has begun. However, the study also recommended that the CBN should review the implementation approach of the financial literacy target and savings target among the rural populace-taking into consideration the peculiarities of the country‟s rural areas; in order to enhance bank account ownership and consequently, financial inclusion among the rural populace in the area, and the country at large by the due date of the programme in 2020.
TABLE OF CONTENT
Title Page – – – – – – – i
Declaration – – – – – – – ii
Dedication – – – – – – – iii
Certification – – – – – – – iv
Acknowledgement – – – – – – – v
Table of Content – – – – – – – vi
List of Tables- – – – – – – ix
List of Appendices- – – – – – – x
Abstract – – – – – – – xi
CHAPTER ONE – INTRODUCTION
1.1 Background to the study – – – – – – 1
1.2 Statement of the Problem – – – – – 5
1.3 Research Questions – – – – – – – 6
1.4 Objectives of the Study – – – – – – 7
1.5 Hypotheses – – – – – – – 8
1.6 Significance the Study – – – – – – 8
1.7 Scope of the Study – – – – – – – – 9
1.8 Definition of Key Terms – – – – – 10
CHAPTER TWO – LITERATURE REVIEW AND THEORETICAL FRAMEWORK
2.1 Introduction – – – – – – – 11
2.2 Concept of Financial Inclusion – – – – – 11
2.3 Effect of Financial Literacy on Account Ownership – – – 16
2.4 Effect of Microfinance Banking on Account Ownership – – 19
2.5 Effect of Savings on Account Ownership – – – – 20
2.6 Effect of Payment on Account Ownership – – – – 22
2.7 Account Ownership- – – – – – – 25
2.8 Concept of Rural Populace – – — – – 28 2.9 Past
Policy Efforts on Rural Financial Inclusion in Nigeria – – 30
2.10 Structural Challenges of the Rural Dwellers in Nigeria- – – 32
2.11 Theoretical Framework – – – – – – 34
CHAPTER THREE – RESEARCH METHODOLOGY
3.1 Introduction – – – – – – – 37
3.2 Research Design – – – – – – 37
3.3 Overview of the Study Area – – – – – 38
3.4 Population of the Study – – – – – 39
3.5 Sample Size and Sampling Technique- – – – 39
3.6 Model Specification – – – – – – 39
3.7 Sources of Data – – – – – – – 40
3.8 Instrument of Data Collection – – – – – 41
3.8.1 Validity and Reliability of Instrument of Data Collection – – 41
3.9 Techniques of Data Analysis – – – – – – 42
3.9.1 Decision Rule for Test of Hypotheses- – – – – 43
CHAPTER FOUR – DATA PRESENTATION AND ANALYSIS
4.1 Introduction – – – – – – – – 44
4.2 Data Presentation – – – – – – – 44
4.2.1 Descriptive Statistics – – – – – – 44
4.3 Factor Analysis – – – – – – – 57
4.4 Reliability Analysis after Factor Analysis – – – – 61
4.5 Tests for Violations of Assumption for Multiple Regressions – — 61
4.5.1 Normality – – – – – – – 61
4.5.2 Linearity – – – – – – – 62
4.5.3 Multicollinearity- – – – – – 62
4.5.4 Homoscedasticity- – – – – – 63
4.6 Test of Hypotheses – – – – – – 63
4.6.1 Statement of Revised Hypothesis – – – – – 64
4.7 Discussion of Findings – – – – – 66
4.8 Implications of the Findings – – – – – 68
CHAPTER FIVE – SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Summary of Findings – – – – – – 71
5.2 Conclusion- – – – – – 72
5.3 Recommendations – – – – – 73
5.4 Limitations of the Study – – – – – 74
5.5 Suggestions for Further Studies – – – – – 74
References – – – – – – – 76
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
The National Financial Inclusion Strategy (NFIS) was promulgated in the last quarter of 2012. It is a general financial inclusion programme of the Central Bank of Nigeria(CBN), whose strategic objective is to curb financial exclusion in the country by setting a clear a genda to significantly increase access to, and use of formal financial products and services from 36.3 per cent in 2010 to 70 per cent in 2020. To achieve this feat therefore, the programme set up certain targets to be strategically met in terms of financial literacy, savings, microfinance bank branches, payments, automated teller machine (ATMs), point of sale (POS), pensions, insurance and credit. These are to be pursued from 2012 to 2015 and subsequently to 2020; from which according to the programme financial inclusion in the country would be increased up to at least 70 per cent by the year 2020.
The problem of financial exclusion in the world is a situation that countries, especially the developing ones- like Nigeria can no longer ignore or treat with levity. A situation where a set of people for reasons outside their control, find it difficult or even impossible to access financial services as they may desire, call for both policy and academic attention. A report by the Enhancing Financial Innovation and Access (EFInA, 2010) indicates that the financially excluded people in Nigeria stood at 39.2 million representing 46.3 per cent of the country‟s adult population. Also, a total of 2.9 billion adults across the globe were reported to be financially excluded according to the same source. This underscores the enormous need for financial inclusion, first among the vulnerable groups (rural dwellers for instance) and in the country as a whole. This is what Nwankwo and Nwankwo (2014) argued that financial inclusion is critical to the attainment of poverty reduction, removal of barriers to economic participation of rural dwellers: women, youths and those at the bottom of poverty.
Account ownership with bank is a key element of financial inclusion because it has implication for both the holder, the bank, government and the financial system as a whole. When one has no account relationship with at least a bank, the idea of savings will certainly be inconsequential to them. This automatically would impact negatively o n the traditional function of financial intermediation by banks-which is basically the mobilisation of funds from surplus to deficit ends that is, the sourcing of funds from areas of availability to be channelled to areas where such funds are most needed, which in turn stimulates economic activities. Government policy would greatly be aided in an economy with a more inclusive financial system. For instance, the conditional cash transfer to the vulnerable and extremely poor policy-formulated in the last quarter of 2015 by the present All Progressives Congress (A.P.C) led federal government of President MuhammaduBuhari (Kumolu, 2015) would have been much easier, faster and successful where the said vulnerable and extremely poor citizens are fully integrated in the mainstream financial system of the country. Because through their data and personal bank accounts, the government would have had direct access to them without any need for intermediaries, which is capable of breeding corruption in ter ms of siphoning and misappropriation, thereby leaving some of the targeted people unattended. Expansionary and contractionary monetary policy could be affected by a situation where some parts of the country‟s population are financially excluded. Financial inclusion is thus a sine qua non in this regard.
The most excluded from the formal financial system in Nigeria, predominantly live in the rural areas (Juma, 2007). Shedding more light on this development, Onyenechere (2010) indicated that about 70 per cent of the country‟s population dwell in the rural areas. This position is further corroborated by the report of the United Nations Children‟s Education Fund (UNICEF) Country Programme Document 2014-2017 (2013) which puts Nigeria‟s rural population at 64 per cent. A total of 2.9 billion people are established to be excluded from the formal financial system around the world. In other words, about 3 billion people across the globe do not have access to formal banking and financial services (Dangi& Kumar, 2013). In Nigeria, a total of 46.3 per cent of the country‟s adult population was reported to be financially excluded by the Enhancing Financial Innovation and Access to Financial Services (EFInA) survey in 2010; this is 39.2 million of the 84.7 million adult populations in the country; 34.0 per cent had no formal education, and 80.4 per cent resided in the rural areas (CBN, 2012). The same percentage of the financially excluded in the country is reported by Alani and Sani (2014); Tijani, (2012); and Michael, (2014). The northern part of Nigeria accounts for the highest number of the financially excluded (68 per cent) in the country (CBN, 2012).
Some of the obvious factors attributable to this economic problem include: the physical distance to bank branches in most rural areas which makes it difficult and expensive to access financial services; low economic activities in the rural areas limit the profit potential of financial institutions. Thus banks find it less attractive to set up branches there; and educatio n levels as well as financial literacy are typically low in the rural areas, making it less likely that clients will make use of financial products and services (Tijani, 2012).
Relevant to this study is the National Financial Inclusion Strategy (NFIS), on how it has promoted bank account ownership (i.e. financial inclusion) among the rural populace in Kudan Local Government Area of Kaduna State. This is in terms of its targets, particularly those that constitute more common and regular factors for which a typical Nigerian rural dweller may be induced to open and own a bank account. Thus, the financial literacy, microfinance banks‟ branches, savings, and payments, targets are key as to why an individual (especially a rural dweller) would in the ordinary and regular banking services, want to own an account; which is a key indicator of financial inclusion. Thus, should these targets be fully achieved according to the programme would mean an increase in the number of people who own and operate bank account(s) in the country. This by extension would mean a higher level of financial inclusion in the country in general, and specifically among the rural populace.
Although there are other targets like the Automated Teller Machine (ATM) target, Point of Sale (POS), credit, insurance and pensions targets, this study primarily focus on these four targets of financial literacy, savings, microfinance banks‟ branches (MFBs) and payment, in relation to account ownership because account ownership is basic to consummating most the other services and products. For instance, for one to enjoy the service of an ATM or POS, it must be operated from a registered account in the name of the card owner. Also, to access credit facility, such transaction must proceed from a registeredaccountas is customarily practiced here in Nigeria. In other words, they are more central and basic drivers to opening an account especially by the rural populace, as some of them may not be interested in too much modern banking sophistication (Tijani, 2012). Owning an account would thus make them become customers of a bank which is a sine qua non for customer-banker relationship, which is consequently an imperative of financial inclusion.
1.2 Statement of the Problem
The enormous attention being given to financial inclusion both locally and internationally stems from the important role finance plays in every human institution and endeavour. Looking at the bank branching pattern in Nigeria, it leaves no iota of doubt to any careful observer that it is urban bias. This has been the trend from time immemorial until 1977 when the federal government introduced „the rural banking scheme‟, which was the very first time a deliberate policy attempt was made by government to take banking to the door-steps of the rural dwellers in the country. The obvious neglect of the rural areas in terms of branch concentration as against what is obtainable in the urban areas where bank branches can conspicuously be seen on major streets, can perhaps be adduced to the peculiarities of the rural areas-such as low level of economic activities vis-à-vis the urban areas, the level of literacy, infrastructural challenges and the general perception of the rural areas as not very profitable areas by the banks (Oluwatayo, 2014). This further explains the assertion by EFInA (2010) that 80.4 per cent of the 39.2 million financially excluded people in Nigeria, are in the rural areas. Financial exclusion is a prevailing reality in Nigeria generally, and in the rural areas in particular; which is said to harbour 63.9 per cent of the country‟s population (EFInA, 2014).
Although the 1977 rural banking scheme did not survive the test of time, because its objectives were neither fully realised nor sustained, it however succeeded in at least introducing banking and banking habits for the first time in the country‟s rural areas. The CBN introduced the National Financial Inclusion Strategy in 2012; which sets to achieve the following targets in terms of products by 2020: 70 per cent payment and 60 per cent savings. Then 5.0 microfinance branches per 100,000 adults; as well as 20, 50, and 100 per cents financial literacy curriculum in primary, secondary and tertiary institutions respectively in terms of channels-country wide by the same year (2020).
Recent reports by the CBN indicates that the programme is beginning to yield the desired result, as the financially excluded in the country has dropped from 46.3 per cent in 2010 to 41.6 per cent in 2016 (CBN, 2016). However, the concern begging for clarification here (which is the focus of this study) is, whether the programme as a whole and the improvement it has recorded so far in engendering financial inclusion in the country is holistic; that is, whether it has translated into the financial inclusionof the rural populace by making more rural dwellers-particularly in Kudan Local Government (a rural council area) to become bank customers through theownership of a bank account(s). In other words, this study is out to evaluate the effectiveness of the programme so far in the rural areas through the pursuit of its targets as it translate into an increase in bank account ownership among the teaming rural populace in the study area (Kudan Local Government), given that the programme has been implemented for more than half of its lifespan (2012-2020). This is sequel to the urban bias banking system that has been the practice over the years. Because of the peculiarities of the rural areas, which has greatly influenced their perception as not very profitable areas by most banks (Oluwatayo, 2014).
1.3 Research Questions
The following questions are therefore necessary in order to guide the study as well as provide a focus for the researcher and the reader. The general research question is, to what extent has the NFIS, through its specific targets of financial literacy, microfinance banks branches, savings and payment, promoted bank account ownership(financial inclusion) among the rural populace in Kudan Local Government Area of Kaduna State? The specific questions of the study are:
i. To what extent has the financial literacy target of the NFIS enhanced bank account ownership among the rural populace in Kudan Local Government?
ii. To what extent has the NFIS microfinance banks‟ branches target increased bank account ownership among the rural populace in Kudan Local Government?
iii. To what extent has the savings target of the NFIS stimulated bank account ownership among the rural populace in Kudan Local Government?
iv. To what extent has the NFIS payments target encouraged bank account ownership among the rural populace in Kudan Local Government?
1.4 Objectives of the Study
Generally, this study seeks to determine the extent to which the NFIS has promoted bank account ownership (financial inclusion) among the rural populace in Kudan Local Government Area of Kaduna State, mid-way into the lifespan of the programme. The specific objectives of the study on the other hand, are as follows:
I. To determine the extent to which the financial literacy target of the NFIS has enhanced bank account ownership among the rural populace in Kudan Local Government.
II. To determine the extent to which the NFIS microfinance banks‟ branches target has increased bank account ownership among the rural populace in Kudan Local Government.
III. To determine the extent to which the savings targe t of the NFIS has stimulated bank account ownership among the rural populace in Kudan Local Government.
IV. To determine the extent to which the NFIS payment target has encouraged bank account ownership among the rural populace in Kudan Local Government.
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1.5 Hypotheses
The hypotheses below stated in their null form, will be tested in order to provide answers to the research questions raised above.
Ho1: The financial literacy target of the NFIS has not significantly enhanced bank account ownership among the rural populace in Kudan Local Government.
Ho2: The NFIS microfinance banks‟ branches target has not significantly increased bank account ownership among the rural populace in Kudan Local Government.
Ho3: The savings target of the NFIS has not significantly stimulated bank account ownership among the rural populace in Kudan Local Government.
Ho4: The NFIS payment target has not significantly encouraged the bank account ownership among the rural populace in Kudan Local Government.
1.6 Significance of the Study
In view of the importance of financial inclusion which has continually placed it on the global economic spotlight due to its role in the eradication of national and global challenges like poverty and hunger. Different countries across the globe have designed different policies and programmes in a bid to drive it home by adequately addressing the concern of financial exclusion question within their shores. Nigeria as a member of the comity of nations has also come up with the National Financial Inclusion Strategy (NFIS) as its own formidable approach to the issue, which became effective in 2012. Thus the findings of this study would significantly provide a feedback to the CBN and the federal government on the effectiveness the programme (NFIS) so far in curbing financial exclusion among the rural populace of the country. This is in terms of how it serve to increase the level of bank account ownership in the rural areas or not pursuant to its targets.
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The findings of this study would reveal to the CBN, the federal government and the general public whether the pattern of banking system in the country, which has been predominantly pro urban is beginning to change in favour of the rural areas as a result of the programme.
The findings of this study would further add to the existing body of knowledge in the field of finance and financial inclusion in particular with respect to the financial inclusion situation of the rural populace inKudan Local Government and the country in general.
Based on the findings, the study would make recommendations to the CBN and federal government on the way forward on the programme vis-à-vis the peculiarities of the rural populace wherever necessary, with a view to achieving a more meaningful result thereof at the end of the programme‟s time frame in 2020.
1.7 Scope of the Study
This study is primarily concerned with the issue of financial inc lusion of the rural populace. That is, it is particularly concerned with evaluating the role of the NFIS through its targets in promoting bank account ownership whichis an index of financial inclusion, among the rural populace. The study is situated in Kudan Local Government because it is typically a rural council area with only a single microfinance institution (Nakowa Microfinance Bank) which makes it suitable for the study because its rural peculiarities satisfy the study‟s conception of rural areas.To timely and successfully complete it, the study is focused on four targets of the NFIS considered relevant to the basic and common reason a typical rural dweller would want to own a bank account-which is the yard stick for determining financial inclusion in this study. Also, it is common knowledge in the Nigerian banking system that for one to utilise products
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and services relative to the other targets, such as the ATM, POS, credit, pension and insurance; one must first own a registered account either as an individual or group through which such products and services can be consummated. Therefore, the choice of the four targets being studied was informed by the focus of the study which is, „bank account ownership‟; which is considered basic to the financial inclusion of the rural populace in this study.
1.8 Definition of Key Terms
Financial Inclusion: This refers to a situation where all qualified adult citizens who hitherto were outside the banking system in the country are brought into it, by removing any encumbrance posed by either distance, cost, ignorance, lack of option or cho ice, which could have partly or completely shut individuals or groups out of the national financial system.
National Financial Inclusion Strategy (NFIS): The NFIS as used in this study refers to the targets of the programme here studied:
i. The financial literacy target,
ii. The microfinance banks‟ branches target,
iii. The savings target and,
iv. The payment target.
Rural Populace: The idea of rural populace as used in this study connotes the hamlets i.e. the grass root population or members of the country‟s population living in the interior or remote areas, where the total number of households may not necessarily exceed hundred ( i.e. minor or smaller rural settlements).
Bank Account ownership:Account ownership/account opening as used in this study refers to establishing an account relationship with a bank.
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