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An Analytical Review of Financial Intermediation in the Rural Areas of Nigeria

Author

Listed:
  • Muhammad Aliero, Haruna
  • Sani Ibrahim, Saifullahi

Abstract

This study analyses financial intermediation in the rural financial sub-sector of Nigerian economy. In achieving the objective of the paper, we investigate the relationship between the total deposit mobilized and the total loan advanced by the formal bank branches located in the rural areas of Nigeria from 1982-2009. The study uses time series secondary data collected from various issues of the Central Bank of Nigeria (CBN) statistical Bulletin, the data was analysed using the Augmented Dickey Fuller unit root tests and Johansen cointegration tests allowing for using fully modified Ordinary Least Square (OLS) method. The study found that rural deposit has a significant positive influence on rural loans while the influence of interest rate is positive but not significant. The result of Pearson Product Moment Correlation revealed a fair correlation between deposits mobilised and credits allocated in rural areas of Nigeria. As such, 48% of the deposit mobilised is given out to rural customers as loan. The study concluded that formal bank branches in the rural areas have done fairly well in terms of credit creation although there is still room for expansion. However, limited presence of financial institutions in the rural areas is the major problem inhibiting financial intermediation in the rural areas of Nigeria. The study, therefore, recommends that the CBN should direct all rural banks to give out at least 60% of their deposit as the loan to rural borrowers while linkage banking should be used for the very remote communities where formal bank branches could not be located.

Suggested Citation

  • Muhammad Aliero, Haruna & Sani Ibrahim, Saifullahi, 2012. "An Analytical Review of Financial Intermediation in the Rural Areas of Nigeria," MPRA Paper 87567, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:87567
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    References listed on IDEAS

    as
    1. Asli Demeirgüç-Kunt & Ross Levine (ed.), 0. "Finance and Growth," Books, Edward Elgar Publishing, number 17119.
    2. Beck, Thorsten & Levine, Ross & Loayza, Norman, 2000. "Finance and the sources of growth," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 261-300.
    3. Robert Engle & Clive Granger, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    4. Saifullahi Sani Ibrahim, 2012. "An Alternative Approach to Ending Economic Insecurity in Nigeria: The Role of Revolving Credit Association," International Journal of Economics and Financial Issues, Econjournals, vol. 2(4), pages 395-400.
    Full references (including those not matched with items on IDEAS)

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    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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