Relationship between Sustainable Financial Services and Poverty Reduction in Nigeria - Evidence from Error Correction Model

Abstract

The inflexibility of poverty is being met with increasing impatience from governments of diverse ideologies, donors and other international agencies. Recent data compilations show that many poor and non-poor people in many developing countries face a high degree of financial exclusion and high barriers in access to finance. Therefore, financial inclusion plays a critical role in reducing poverty. Hence, this paper examines the relationship between sustainable financial services and poverty reduction in Nigeria from 1965 -2010 using Error Correction Model (ECM). It was observed that total value prime lending rate, financial savings, credit to private sector and rate of inflation all have significant impact on the financial deepening. In the final analysis, the study concludes that financial inclusion tends to strengthen financial deepening and provide resources to the banks to expand credit delivery thereby leading to financial development. The study therefore recommends that these findings, in turn, will inform the policy makers and stakeholders to build more inclusive financial systems.

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