RURAL FINANCIAL INTERMEDIATION AND PER CAPITA INCOME GROWTH IN NIGERIA

Abstract

Nigeria continues to experience persistently low per capita income growth, a challenge that is especially acute in rural areas where the majority of the population resides. One major contributing factor to this stagnation is poor rural financial intermediation, characterized by limited access to credit, inadequate deposit mobilization, and insufficient banking services through rural branches of commercial banks. This financial exclusion constrains investment opportunities and entrepreneurial activities, thereby impeding income growth in rural communities. This study investigates the long-run effect of rural financial intermediation on per capita income growth in Nigeria, focusing on the role of rural branches of deposit money banks in improving income in underserved rural areas. Building on existing research linking financial inclusion to economic growth, this study disaggregates rural financial intermediation to specifically examine rural loans and deposits, addressing a gap in understanding their direct impact on income growth. Using an ex-post facto research design, time-series data are analyzed with an Autoregressive Distributed Lag model to estimate the long-term relationships between rural banking operations, population growth, interest rates, and per capita income growth. The study concludes that while rural financial intermediation shows positive signs of influencing per capita income growth in Nigeria, its current impact is statistically insignificant. However, the significant positive effect of interest rates indicates that access to credit continues to play a vital role in driving income growth despite borrowing costs. In light of these findings, it is recommended that policymakers should focus on expanding credit availability alongside financial education to promote productive borrowing.