Leeds Metropolitan University

Faculty of Business & Law

MA International Business

A Comparative Analysis of Financial Inclusion:

A Study of Nigeria and the UK

A research project submitted in partial fulfillment of the requirements for the:

Masters Degree in International Business

By:
IBEACHU E. HENRY

September, 2010.

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FACULTY OF BUSINESS AND LAW
Postgraduate Scheme
Programme/course: ………………………………….

Statement of Originality and Authenticity

This dissertation is an original and authentic piece of work by myself. I have fully acknowledged and
referenced all material incorporated form secondary sources. It has not, in whole or part, been
presented elsewhere for assessment.

I have read the Examination Regulations and I am aware of the potential consequences of any breach
of them.

Signature:

Name: IBEACHU E. HENRY

Date: 15th September, 2010

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 ACKNOWLEDGEMENTS
I want to give Glory to God for His daily strength and motivation to be able to complete my Masters
degree and to submit my research.
I want to appreciate the help of my family in their prayers and good wishes towards me, notably to my
parents; Mr. & Mrs. L.N Ibeachu, and to my siblings, Kosi, Dozie, Chika, Rachel, Vivian and Helen.
It was by their motivations and assistance that all of my endeavors came through.
To my tutors and especially my Supervisor; Mr. Peter Chippindale. He guided me through all the
difficulties of carrying out a masters dissertation. To my course administrator; Mr. Gary Carr and all
my tutors. They filled me with the knowledge through their lectures and teachings.
To all my great friends; Akash, Jorge, Vincent, Nomso, Shuji, Ejila, and many more, I am very
grateful.
To Emem; I appreciate all the prayers and support.

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 ABSTRACT

The study and survey of financial inclusion is useful for both policy makers and bank service
providers to make strategic decisions. This dissertation attempts to provide a snap shot of the extent
of financial inclusion i.e. the level and expansion of access and capability of the Nigerian public in
finance utilization. It identifies the main types, causes and factors that motivate or hinder financial
inclusion.
The research states the drive of financial inclusion and bank outreaching as a strategic move of
financial providers (banks) to seek out strategic customers. It shows financial inclusion as a growth
strategy for banking institutions. It also assessed the capability of the Nigerian banking industry with
the use of Porter’s diamond model. This provided a plain look at the general strength of the industry.
With the use of questionnaires administration and several other data collection methods, the research
compared the results from Nigeria and the UK. This was to generally assess the expansion of
financial inclusion of Nigerian from benchmarking a more highly included economy.

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Table of Contents
CHAPTER ONE ........................................................................................................................... 10
1.1 INTRODUCTION ............................................................................................................... 10
1.2 Objectives ....................................................................................................................... 11
1.3 Financial inclusion ......................................................................................................... 11
1.3.1 Financial Exclusion ................................................................................................. 12
1.3.2 Banking the Unbanked ............................................................................................ 12
1.3.3 Basic banking Services ........................................................................................... 13
1.3.4 Service quality in Finance Inclusion ....................................................................... 13
1.3.5 Financial Outreach .................................................................................................. 13
1.3.6 Non-bank Institutions for Finance Inclusion .......................................................... 13
1.4 Introduction to the Problem............................................................................................ 13
1.5 Background .................................................................................................................... 14
1.5.1 Nigeria..................................................................................................................... 14
1.5.2 Banking ................................................................................................................... 14
1.5.3 Developments of the Nigerian Banking Sector ...................................................... 15
1.5.4 Unbanked areas in Nigeria ...................................................................................... 15
1.5.5 The Nigerian Micro Finance Policy, Regulatory and Supervisory Framework ..... 16
1.5.6 Overview of the Nigerian Micro Finance/Community Banking Provision ............ 16
1.5.7 Operations of Nigeria’s Microfinance/Community Banking Sector ...................... 17
1.5.8 Problems of the Non-bank System in Nigeria ........................................................ 17
1.6 Summary of Hypothesis ................................................................................................. 18
1.7 Research Structure.......................................................................................................... 18
CHAPTER TWO .......................................................................................................................... 19
2.1 LITERATURE REVIEW ............................................................................................... 19
2.2 Financial Exclusion ........................................................................................................ 20
2.2.1 Types of Financial Exclusion.................................................................................. 20
2.2.2 Causes of Financial Exclusion ................................................................................ 20
2.3 Critical Success Factors of Financial Inclusion ............................................................. 23
2.4 Financial Inclusion as a Generic Competitive Strategy ................................................. 24
2.5 Financial Inclusion as a means of reaching the Strategic Customers ............................ 24
2.6 Rural Financial Inclusion Policy as a Focus Strategy in bank outreaching ................... 25
2.7 Financial Access ............................................................................................................. 25
2.8 Quality Bank Service for Financial Inclusion ................................................................ 25
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 2.9 Success Factors of Service Quality ................................................................................ 26
2.9.1 Core service or service product............................................................................... 27
2.9.2 Human element of service delivery ........................................................................ 27
2.9.3 Systematization of service delivery: (non-human element).................................... 27
2.9.4 Tangibles of service ................................................................................................ 28
2.9.5 Social responsibility ................................................................................................ 28
2.10 Bank Branches................................................................................................................ 28
2.11 Automated Services........................................................................................................ 29
2.12 Quality Service as a Differentiation Strategy in bank Inclusion .................................... 29
2.13 The importance of Microfinance Institutions in Financial Inclusion ............................. 30
2.14 Micro Finance as a Low Cost Strategy in bank outreaching.......................................... 30
2.15 Financial Indicators of Financial Inclusion .................................................................... 31
2.15.1 Currency in circulation to Money Supply ............................................................... 31
2.15.2 Currency outside Banks to Money Supply ............................................................. 31
2.15.3 Currency Held by Banks ......................................................................................... 31
2.15.4 Total Deposits & Loans .......................................................................................... 32
2.16 Covering unbanked areas as a competitive strategy for banks ....................................... 32
2.17 Problems in delivering to the unbanked ......................................................................... 32
2.18 Assessing the Nigerian Banking System ........................................................................ 32
2.18.1 Porter’s Diamond Model......................................................................................... 33
2.19 Competitive Advantage of the banking sector ............................................................... 35
2.20 Solutions to Financial Exclusion .................................................................................... 36
2.20.1 The E-banking Solution .......................................................................................... 36
2.20.2 Financial Education and Community Development ............................................... 36
2.20.3 Subsidized Credit Approach ................................................................................... 37
2.20.4 Employment Creations............................................................................................ 38
2.20.5 Consumer Protection ............................................................................................... 38
2.21 Conclusion...................................................................................................................... 38
CHAPTER THREE ...................................................................................................................... 40
3.1 METHODOLOGY ......................................................................................................... 40
3.2 Research Paradigms ....................................................................................................... 40
3.3 Research Approach ........................................................................................................ 41
3.4 Data Collection ............................................................................................................... 42

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 3.5 Data Analysis ................................................................................................................. 42
3.5.1 Analytical Framework ............................................................................................ 42
3.6 Justification of UK in the survey ................................................................................... 43
3.7 Justification of Nigeria in the survey ............................................................................. 44
3.8 Questionnaire ................................................................................................................. 44
3.9 Hypothesis ...................................................................................................................... 44
3.10 Ethics .............................................................................................................................. 45
3.11 Limitation ....................................................................................................................... 45
3.12 Possible Sources of Bias ................................................................................................ 45
3.13 Conclusion...................................................................................................................... 45
CHAPTER FOUR ......................................................................................................................... 47
4.1 DATA ANALYSIS ........................................................................................................ 47
4.2 Measuring Financial Access........................................................................................... 47
4.2.1 Bank Account owners ............................................................................................. 47
4.2.2 Use/Access to Microfinance/ Community Banks ................................................... 48
4.2.3 Bank Distance and Access ...................................................................................... 49
4.2.4 Access to Automated and Credit/lending Facilities ................................................ 50
4.3 Measuring Financial Inclusion ....................................................................................... 53
4.3.1 Extent of Financial Inclusion .................................................................................. 56
4.4 Effect of factors .............................................................................................................. 62
4.5 Measuring Service Quality ............................................................................................. 65
4.6 Monetary Measures of Financial Inclusion .................................................................... 66
4.6.1 Ratio of Money supply to gross domestic product (M/GDP Ratio %) ................... 67
4.6.2 Ratio of Currency outside Banks to Money Supply (COB/M Ratio %) ................. 67
4.6.3 Ratio of Currency in Circulation to Money Supply (CIC/M Ratio %) ................... 68
4.6.4 Loans to customers and Deposits ............................................................................ 68
4.7 Summary of Findings ..................................................................................................... 69
CHAPTER FIVE .......................................................................................................................... 71
5.1 DISCUSSION ................................................................................................................ 71
5.2 RECOMMENDATIONS ............................................................................................... 73
5.3 CONCLUSION .............................................................................................................. 74
BIBLIOGRAPHY…………………………………………………………………………77
Figures
Figure 1: Financial Access of Developed and Developing Countries .......................................... 10
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Figure 2: Components of Financial Inclusion ............................................................................... 12
Figure 3: Financial Inclusion as a Generic Strategy ..................................................................... 24
Figure 4: Rural Financial Inclusion Policy as a Focus Strategy in Bank Outreaching ................. 25
Figure 5: Quality Service as a Differentiation Strategy in bank Inclusion ................................... 30
Figure 6: Micro Finance as a Low Cost Strategy in bank outreaching ......................................... 31
Figure 7: Porter’s Diamond Model ............................................................................................... 35
Figure 8: Mobile Cellular Subscription per 100 people. ............................................................... 36
Figure 9: Nigerian Deposit and Lending Rate .............................................................................. 38
Figure 10: UK Use/Access to Financial Institutions..................................................................... 49
Figure 11: Nigerian Use/Access to Financial Institutions ............................................................ 49
Figure 12: Bank Branch Distance ................................................................................................. 50
Figure 13 & 14: Users and Non-users of other Banking Services ................................................ 54
Figure 15: Level of Familiarity of Loan Services ......................................................................... 56
Figure 16: Level of Familiarity of Internet Banking Services ...................................................... 57
Figure 17: Level of Familiarity of Mobile Banking Services ....................................................... 58
Figure 18: Level of Familiarity of Debit Card Services ............................................................... 59
Figure 19: Level of Familiarity of Credit Card Services .............................................................. 60
Figure 20: Level of Familiarity of Bank Mortgage Services ........................................................ 61
Figure 21: Effect of Employment Status on Use/Access of Financial Services ........................... 62
Figure 22: Effect of Income Level on the Use/Access of Financial Services .............................. 63
Figure 23: Effect of Interest Rate and Charge on Use/Access of Financial Services ................... 64
Figure 24: Effect of Level of Identification on Use/Access of Financial Services ...................... 65
Figure 25: Overall Perception of Bank Quality Service .............................................................. 66
Figure 26: Money Supply to GDP Ratio Percentage (%) ............................................................. 67
Figure 27: Currency outside Banks to Money Supply Ratio Percentage (%)............................... 68
Figure 28: Ratio of Currency in Circulation to Money Supply (CIC/M Ratio %) ....................... 68
Figure 29: Loans and Deposits to bank customers ....................................................................... 69
Figure 30: Loans and Deposits from Rural bank branches ........................................................... 69

Tables
Table 1: Distribution of Microfinance Banks by Geopolitical Zones........................................... 17
Table 2 & 3: Data on Bank Account Owners ............................................................................... 48
Table 4: Data on Use/Access of Financial Institutions ................................................................. 48
Table 5: Data on Bank Branch Distance ....................................................................................... 50
Table 6: Data on Automated Teller Providers .............................................................................. 51
Table 7: Data on Automated Teller Users .................................................................................... 51
Table 8: Data on Availability of ATMs ........................................................................................ 51
Table 9: Data on Providers of Credit Services.............................................................................. 52
Table 10: Data on Non-users of Credit Services .......................................................................... 52
Table 11: Data on Reasons for ATM Non-users .......................................................................... 53
Table 12: Data on Users of other Bank services ........................................................................... 53
Table 13: Data on Reasons for other Financial Service Non-users .............................................. 54

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Table 14: Data on Level of Familiarity of Loan Services ............................................................ 56
Table 15: Data on Level of Familiarity of Internet Banking Services .......................................... 57
Table 16: Data on Level of Familiarity of Mobile Banking Services........................................... 58
Table 17: Data on Level of Familiarity of Debit Card Services ................................................... 59
Table 18: Data on Level of Familiarity of Credit Card Services .................................................. 60
Table 19: Data on Level of Familiarity of Bank Mortgage Services ............................................ 61
Table 20: Data on Effect of Employment on Use/Access of Financial Services.......................... 62
Table 21: Data on Effect of Income level on Use/Access of Financial Services ......................... 63
Table 22: Data on Effect of Interest Rate and Charges on Use/Access of Financial Services ..... 64
Table 23: Data on Effect of Level of Identification on Use/Access of Financial Services .......... 65
Table 24: Data on Overall Perception of Bank Quality Service ................................................... 66
Table 25: Monetary Measures of Financial Inclusion .................................................................. 67

List of Appendix
Appendix A: Sample of Research Questionnaire
Appendix B: Research Proposal
Appendix C: Subgroup Percentages

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 CHAPTER ONE
1.1 INTRODUCTION
The story of finance starts where there is a general acceptance of what is being offered as services.
There have been various studies in the different financial access. The World Bank financial access
2009 looked at financial access differences between developed and under-developed countries. Their
findings were very distinctive. They discovered (obviously) that the developed European countries
were better exposed to financial services and accounts ownership. They collected some set of
indicators of financial access in countries around the world. Such indicators included the number of
deposit accounts and loans, the number of deposit clients and borrowers, and the number of financial
access points, such as branches, agents, and automated teller machines.

Figure 1: Financial Access of Developed and Developing Countries

Source: World Bank Financial Access (2009)

The Italians studied, with the use of a survey on their different territories. This was to better
understand the new typology of customer who could be more effectively integrated into society and
the ordinary financial system. It is also seen as a policy objective for national policymakers,
multilateral institutions, and others in the economic development field. According to Mitchell, (2003),
a developed financial system on its own cannot bring about economic growth but it can contribute to
it.

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1.2 Objectives
The objective of the research is to assess the level of financial inclusion in the Nigerian context in
comparison to that of the UK thereby stating from findings the nature of both countries’ financial
accessibility.
1) Identify the nature of the Nigerian banking Industry.
2) Identify the Microfinance Scheme as an instrument of financial inclusion.
3) Identify various literatures on the success factors, causes of financial exclusion/inclusion.
4) Pinpoint literatures on service quality as a factor of financial inclusion.
5) Assess financial inclusion as a strategy for growth for banking institutions.
6) Using a theoretical underpinning: Porter’s diamond model to assess the competitiveness of
the Nigeria banking industry.
7) Run a test of the critical factors of financial inclusion through a survey.
8) Comparing surveys descriptively from the UK and the Nigerian banking customers.

1.3 Financial inclusion

“Financial inclusion is a state in which all people have access to appropriate, desired financial
products and services in order to manage their money effectively. It is achieved by financial literacy
and financial capability on the part of the consumer and financial access on the part of product,
services and advice suppliers” (Transact, the national forum for financial inclusion, 2007).
The effort of all institutions both financial and developmental is aimed at encouraging inclusion. The
use and access of financial services has been at the stem of study for major regulatory financial
institutions. Some developed countries report annually on the level of access of finance for economic
and social developments. Technology is gaining grounds on banking services through the use of ICT
devices. Some of the various ways of encouraging and ensuring financial inclusion is in the
circulation of deposit accounts, loans, insurance and automated electronic transfers.

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Figure 2: Components of Financial Inclusion

Source: Karmakar K.G. 2010

1.3.1 Financial Exclusion

The exact opposite of inclusion but could also be termed in the deprivation to social, health and
educational infrastructures. Knowledge of this helps economies and firms alike to understand the
various opportunities for development. It allows policy makers to make better and accurate decisions.
Ways of which this problem can be resolved is through the assessment of affordable banking services
and free financial advice. According to the employees’ forum on disability (2007), access to finance
services like bank accounts, is a fundamental step towards the attainment of broader indicators of
social and economic inclusion.
According to Olsen (2001) financial exclusion of the poor in the UK is generally considered to mean a
lack of access to banking services. It has been interpreted as being caused by the closure of bank
branches and building society offices and thus ignores the possibility of informal-sector lending
offering a substitute for bank services in remote areas.

1.3.2 Banking the Unbanked

Banking today is seen as a means of economic advancement. The level of advance banking is seen as
a competitive edge over competitors. Various banks want to expand and dominate thereby gaining
market grounds.

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1.3.3 Basic banking Services
The importance of basic banking services aims at reducing the cost of using banking services. Banks,
especially in developing economies have these basic services in place to encourage the access of
financial services to the public. The World Bank (2009) found that financial inclusion policies such as
offering basic accounts, transferring government payments to individual accounts, and encouraging
saving through matched and tax-advantaged savings accounts are concentrated in high-income
countries and far from widespread. When implemented in developing countries, they usually work
only if participating financial institutions see them as a viable business proposition.

1.3.4 Service quality in Finance Inclusion

According to the World Bank (2009), getting financial services to rural clients is the biggest challenge
in the quest for broad-based financial inclusion. The understanding of service quality is paramount to
attracting and retaining customers.

1.3.5 Financial Outreach

One of the main barriers to financial inclusion in rural areas is the great distances that rural residents
must travel to reach a bank branch. There are various ways with which this can be resolved. One of
which is through non-bank institutions that close the gap that commercial banks have by spreading
bank branches across areas. Other ways are through technological means like mobile and internet
banking. Banks have sort to expand their technology in the administration of automated services and
devices to broaden their reach of the unbanked sectors.

1.3.6 Non-bank Institutions for Finance Inclusion

According to the World Bank financial access (2009), lower income clients are served mainly by
nonbank financial institutions, including cooperatives, specialized state financial institutions, and
deposit- taking microfinance institutions, where average deposits are smaller. It also states that
regulated nonbank financial institutions cater to poorer clients than banks and provide smaller loans.
The importance of microfinance banks cannot be under-emphasized. These institutions are the
bankers of the poor. In some areas of the world they are funded by charitable institutions and by
government to encourage and empower the lower and under-privileged society.

1.4 Introduction to the Problem

According to Oluba, (2008), Millions of adult Nigerians do not have any kind of dealing with
financial institutions even at the community banking. The Nigerian banking survey states that more
than 53% of Nigerian adults lack access to finance. Only 3% of the adult population uses a
microfinance bank. Santiago el al., (2005 cited in Oluba, 2008) noted that the access to financial

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services in developing countries is limited and it would be useful to provide wider access to those
services as it can be helpful to reduce the volume of currency outside the banks and also enhance the
development and use of financial products.
The Nigerian banking system has gone through various reforms. Nigeria has the fastest growing
banking system in Africa. The success of the financial sector reforms and consolidation in the banking
industry is very critical because like the UK financial system, the sector plays a catalytic role in the
economy.

According to FSA (2000), the increase in financial inclusion in the case of the United Kingdom has
been boosted by significant developments in the financial services sector which included re-regulation
of the UK financial markets; developments of information technology; and the 1990s recession.
Leyshon and Thrift, (1995 cited in Amaeshi et al., 2007) stated that these factors spurned a “flight of
quality” approach to servicing customers.

1.5 Background
1.5.1 Nigeria
According to Smith A. and Aigbe K. (2010), one of the key drivers of the Nigerian banking
performance in 2009 was the “flight of depositors”. They stated that while some banks experienced
declines in their deposit base, there was a boost in the deposit base of banks that were perceived to be
stronger.
Sanusi L. S (2010) also stated in his address of the public that one of the factors that brought about a
downturn in the Nigerian banking sector was the lack of consumer sophistication. He said that banks
failed to impose market discipline and take advantage of the consumers. Augusto O. (2005) stated that
one of the problems of the Nigerian banking sector is the failure of banks to see from the perspective
of the customers. They failed to analyze the customers need for better services and diversified
delivery channels. They also failed to ensure that banking customers can access services at lower
costs.

1.5.2 Banking
According to the National Bureau of statistics (2010), the history of banking in Nigeria dates back to
1892. Until, 1959, the banking system remained unregulated. After the consolidation reform in 2004,
today, Nigeria has a total of 25 banks operating independently but being supervised by the Central
Bank of Nigeria.

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1.5.3 Developments of the Nigerian Banking Sector
According to CBN statistical bulletin (2007) the Nigerian banking industry has experienced an
excessive amount of growth. In 1990, the number of banks increased from 42 to 107. The number
went upwards in 1992 to 120 banks in total. At the time of 2004, this amount fell to 89 due to bad
fortunes. Today the country has 25 banks. This was shortly after the consolidation reform that
witnessed several banks either liquidating or merging with one another to survive because they
couldn’t meet the 25 billion naira capital base.
Consolidation is a term used by the central bank of Nigeria (CBN) to describe the coming together of
some banks within the country to become one bank and be able to meet CBN’s requirement for
capitalization to a minimum of 25 billion naira. After the consolidation of the banking system, it is
expected that the services rendered by the joined banks will be improved. Phillips (1997 cited in Oke.
A 2006) stated that the more capital a bank has at its disposal, the more losses it can sustain without
going bankrupt capital thus provides the measure for the time a bank has to correct for lapses, internal
weakness or negative developments. Possessing adequate capital also offers other benefits like
protecting the depositors and creditors of banks in cases of failure and also enables banks to attract
funds and to subsidize the charges on their services at lower cost. According to Oke .A (2006),
adequate capitalized banks that are well managed are better able to withstand losses and provide credit
to consumers and businesses alike throughout the business cycle including during downturns.
Adequate capital thereby helps to promote confidence in the banking system.
Consolidation of banks also helps to create opportunity for banks to carry out diversified operations.
Oke .A (2006) said that banks should diversify their services by devising creative means of offering
services. These means of offering services can also be channeled towards the unbanked areas and
thereby generating returns to the banks. In the banking bid of generating large amount of returns,
those financial institutions should not neglect their backyards.
The country is over-dependent on the oil sector which accounts for 20% of GDP, 95% of foreign
exchange earnings and about 65% of government revenue. The Nigerian nature of oil dependency has
spawned other economic distortions. It would be good that other avenues of research in the non-oil
sectors of Nigeria e.g. banking sector should be encouraged to enable future growth of the economy.

1.5.4 Unbanked areas in Nigeria

“The unbanked areas in the whole of Africa remain so due to geographical inaccessibility, lack of
infrastructure, the high cost of banking services and lack of financial understanding” (Standard
Chartered Asia, Africa and the Middle East; Guide to working capital Management 2009/10).
According to the Central Bank of Nigeria (2009), about 83.9% of the money in circulation in the
country is still outside the banking system. Banks will therefore, need to come up with innovative
ways of tapping into those market segments to mobilize the huge pool of funds that are there.

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1.5.5 The Nigerian Micro Finance Policy, Regulatory and Supervisory
Framework
Microfinance policy in Nigeria is part of the global financial integration in the provision of tailor
made financial services to those outside the catchments of the big banks either as a result of their
income, location, literacy level or discrimination. As at 2008, 127 private investors applied for micro
finance licenses. The Central bank of Nigeria, (2009), recognized 840 micro financed banks, the
number is relatively small if compared to the population of the country where majority of the people
reside in rural areas. With the creation of the micro finance policy, the question that remains is if the
act can cause a transformation in those rural areas.

1.5.6 Overview of the Nigerian Micro Finance/Community Banking

Provision
Oluyombo (2007) made note that microfinance institutions and banks are fast becoming a household
name globally due to its acceptance as a means of reaching those people that were not served by the
conventional big banks. During the year 2008, the Corporation extended deposit insurance cover to
licensed microfinance banks (MFBs) thereby keeping with the provision of the National Deposit
Insurance Corporation (NDIC) Act No 16 of 2006. Microfinance banking was an initiative designed
to help the poor and economically vibrant Nigerians to have access to credit and reduce the level of
poverty in the country.
The specific objectives of microfinance policy are as follows:
 Make financial services accessible to a large segment of the potentially productive Nigerian
population which otherwise would have little or no access to financial services;
 Promote synergy and mainstreaming of the informal sub-sector into the national financial
system;
 Enhance service delivery by microfinance institutions to micro, small and medium
entrepreneurs;
 Contribute to rural transformation;

In terms of the spread across geo-political zones, the North central states had 101 MFBs in 2008 i.e.
13.2% of the total which was 768 at that time. Also, about 39.7% or 305 MFBs were located in the
South West geopolitical zone followed by South East with 21.6% or 166 MFBs. North East Zone had
the least with 3.9% or 30 MFBs. The South-South Zone has 14.3% or 110 MFBs and the North West
with 7.3% or 56 MFBs. This is shown below:

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Table 1: Distribution of Microfinance Banks by Geopolitical Zones
Geo-political Zone Number of MFBs Percentage (%)
North-East 30 3.9
South-East 166 21.6
South-West 305 39.7
North-West 56 7.3
North Central 101 13.2
South-South 110 14.3
Total 768 100.0
Sources: The Nigerian Microfinance Newsletter. May 31st, 2008.

1.5.7 Operations of Nigeria’s Microfinance/Community Banking Sector

The Microfinance Policy was launched on the 15th December, 2005 by the Central Bank of Nigeria
(CBN) to complement the banking sector reforms. According to the policy framework, MFBs were
promoted to provide financial services to the economically active poor in the society. The policy was
targeted at creating an environment of financial inclusion to boost capacity of micro, small and
medium enterprises (MSMEs) to contribute to economic growth and development through job
creation that would lead to improved standard of living and poverty reduction.

1.5.8 Problems of the Non-bank System in Nigeria

The microfinance and community institutions are faced with several issues in their attempt to be a
means of outreach to the general poor. According to the National Deposit Insurance Corporation
(2008), some of these issues are:

1.5.8.1 High Operating Cost

Here, the cost operating grew largely because of the also high cost of accommodation in urban areas
and high wage bills. This resulted in the reduction of loan able funds available to the general poor and
also to the micro, small and medium enterprises.

1.5.8.2 Lack of Microfinance Experience

The idea of micro financing was a new concept in Nigeria. Majority of the staff of MFBs did not have
requisite knowledge and skills in microfinance.

1.5.8.3 Contagion of Risk

After the failure of most community banks and finance houses, the general public is growing weary of
the micro finance banks. This caused a great problem for these banks to be able to mobilize loans.

17
1.5.8.4 Collateral Security Challenges
This is due to the problem of poor borrowing nature of Nigerians and that many microfinance banks
had not embraced the culture of the lending practice. This was also due to the slow judicial process of
settling the loan recovery process.

The Nigerian banking system is growing but at a semi fast rate when compared to other international
institutions. This is perhaps due to the limited level of exposure of its services to the public thereby
resulting to a low level of access to these facilities. Access and use of the services that banks have to
offer is one of the primary driving factors of further growth.
The main push towards this study was the curiosity to how far these services are being utilized and
what the factors are that makes them useable and appreciated.

1.6 Summary of Hypothesis

The study is based on the summaries that bank charges; economic status; financial complexity; quality
of service; financial education and income are positively related to the problem of financial exclusion.

1.7 Research Structure

The research is structured in the following format for better comprehensiveness of the study. Chapter
one is to give a general introduction to the topic by defining terms and explaining topics. Chapter two
is a capture of literatures on the topic to further validate the study. Chapter is an outline of the
methods and analytical approach of the research. Chapter four is a description of the findings. Finally,
chapter five is for the discussion, conclusions and recommendations.

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 CHAPTER TWO

2.1 LITERATURE REVIEW

Introduction
For banks to stay competitive, they must look to differentiate itself from its competitors. One of those
diverse ways is through their inclusion strategies. The importance of banks cannot be
underemphasized. The same can be said about the communities that they serve. Banks face a
challenge with the winning over, satisfaction and the retention of their customers. They are also faced
with the challenge of bringing unbanked households into the banking system and also not forgetting
their duties to their owners and shareholders. According to Nigeriatelecoms, an online magazine,
banking the unbanked will not be achieved if African Banks continue with same strategies that shut
out potential new customers base that constitute 70% of the continent’s population. Santiago et al
(2005 cited in Oluba, 2008) noted that in developing countries, access to financial services is typically
limited and therefore providing wider access to such services can aid financial and economic
development. According to the House of Commons Treasury Committee 2005/06, banking services
are central to the challenge of financial inclusion. These stress the importance of quality of services in
financial inclusion banking. Al-Hawari et al., (2005), also made it known that service quality has
received much attention because of its relationship with cost, financial performance, customer
satisfaction and retention and also with competitive advantage.

In banking worldwide, the service environment is becoming very competitive and is featured by many
demanding customers and banks are seeking various ways of getting more unreached areas. Even so,
many parts of the underdeveloped world do not share a similar view in terms of the availability of
banking services at their disposal. Africa has been at the center of attraction in terms of this. In some
areas of concern, there is the issue of long distances between communities and bank branches and also
the unavailability of cheaper banking facilities. Some of them incur some amount of cost on wanting
to have access to ATMs or other banking services. Sometimes, the issue could be that some people do
not see the need for these services and so banks have to device several means of easing off the
pressures of accessing these services. Therefore, the quality of service becomes an integral part of the
financial institutions attempt to reach the unbanked. The attitudes of banks and non-banking
institutions should be channeled towards seeing these unreached areas as a competitive edge as they
constitute a majority of the population in underdeveloped areas. There is a need to further look into
the matter of financial exclusion/inclusion, service quality and strategies that will help in customer
outreaching.

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2.2 Financial Exclusion
According to Kendall et al., (2010), in developing countries there is an estimate of 0.9 accounts per
adult and 28% banked adults. He stated that the rise of financial inclusion as an important policy goal
is due in part to mounting evidence that access to financial products can make a positive difference in
the lives of the public. The European Commission Manuscript 2008 defines financial exclusion as a
process whereby people encounter difficulties accessing and/or using financial services and products
in the mainstream market that are appropriate to their needs and enable them to lead a normal social
life in the society in which they belong. They also stated that there is some widespread recognition
that financial exclusion can be referred to as part of a much wider social exclusion, faced by some
groups who lack access to quality essential services such as jobs, housing, education or health care.

2.2.1 Types of Financial Exclusion

Kempson and Whyley (2000), in their study, established six types of financial exclusion:
 Physical access exclusion: This, they stated, is brought about by the closure of local banks or
building societies and lack of reliable transport to reach alternatives.
 Access exclusion: This type of access is restricted through risk assessment, with people being
denied a product or service as they are perceived to be high risks.
 Condition exclusion: This is when conditions are attached to products or services thereby making
them inaccessible to some.
 Price exclusion: This occurs when products are available but at a price that is unaffordable.
 Marketing exclusion, where sales and marketing activity is targeted on some groups, or areas, at
the expense of others.
 Self exclusion, when individuals do not seek financial products and services for reasons
including fear of failure, fear of temptation or lack of awareness.

2.2.2 Causes of Financial Exclusion

According to the World Bank (2008, cited in Honohan and King, (2009), the causes of financial
exclusion were broken down into: insufficient income; discrimination; contractual/information
framework; and price and product features. In their research, Honohan and King (2009) looked to see
the reasons that none financial user give for not using financial products. He asked if it could be fixed
by the financial providers in terms of quality of service, location or relevance of product.
Kempson (2006) gave some explanations to the reasons why people are financially excluded. He said
that these reasons could vary from country to country. He stated the importance of bank required
identification and documents, the terms and conditions of bank accounts, levels of bank charges,
physical access and cultural barriers in financial inclusion.

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2.2.2.1 Required Identification
Kempson (2006) stated that various types of people with the right means of identifying themselves
fail to meet the banks requirements to open an account. People like the homeless and unemployed.
Everywhere around the world, banks require a certain proof of identity before some kinds of services
can be offered. This was also attributed to stricter money laundering rules by Brussels (2006) stating
that it is in response to avoid terrorist attacks, with some people being unable to satisfy required
identification. Leyshon and Thrift (1995, cited in the European Commission, 2008) stated that
people with limited income and with some disabilities represent a high risk to the financial
institutions, who then avoid such geographical locations where these people reside.

2.2.2.2 Financial Liberalization and Over -complexity

Kempson et al., (2000, cited in, The European Commission 2008) gave financial liberalization as one
of the societal factors that limits financial inclusion. Shehzad and De Haan (2008) argued that
financial liberalization reduces the likelihood of financial crises. Contrary to this, it was stated in the
European Commission (2008) that financial liberalization has led to an increase in the complexity of
financial products and providers.
The liberalization of the financial system is comprised of high levels of administrations of financial
institutions, which according to Shehzad and De Haan (2008), is measured with the presence of
interest rate controls, credit controls, entry barriers, capital account restrictions and supervision of the
banking sector.

2.2.2.3 Terms and Conditions of Bank Accounts

Different banks across the world have different terms and conditions to opening accounts with them.
Such terms as amount of money to open with, the amount of minimum/maximum balance e.t.c. This
goes a long way to having an effect on the extent of financial inclusion. Kempson (2006) explained
that these different types of terms and conditions can deter or prevent people with low incomes to
open an account. Some accounts come with certain contracts that establish the rules on which the
accounts are controlled.

21
2.2.2.4 Income Inequality and Unemployment
Kempson (2006) stated that countries with low levels of income inequality tend to have lower levels
of financial exclusion, whereas high financial exclusion is found in least equal countries. In most
areas of the world, a person who is unemployed and with no source of income is most likely to be
excluded from the use of financial facilities. It is also likely that this will be due to self-exclusion.

2.2.2.5 Levels of Bank Charges

OFT (1999, cited in Wallace and Quilgars, 2005) stated that the fear of getting overdrawn and
incurring high bank charges was a major discouraging factor for many people on low or modest
incomes to obtaining an account. Kempson et al, (2000, cited in Wallace and Quilgars, 2005)
supported by saying that low income earners prefer bank services that complies with the needs of low
income households.

2.2.2.6 Lack of Physical Access

The inability to have access to certain financial services could be due to various reasons like; travel
distance, disabilities, or level of knowhow. According to Kempson (2006), it can also be caused by
bank closures which are due to the intense level of competition and economics in international
banking. The World Bank financial access (2009) stated that the main barrier to financial inclusion in
rural areas is the great distances that rural residents must travel to reach a bank branch.

2.2.2.7 Cultural Barriers

“In countries with high levels of financial exclusion, self exclusion by individuals with low or no
income is more of the reason for lack of access to banking services than direct exclusion by the banks
refusing to open accounts” (Kempson, 2006).
Help the aged (2005) noted that cultural and language barriers is one of the issues that minority
community dwellers face in accessing financial services.

2.2.2.8 Lack of effective demand for services

Sinclair et al., (2009) explained that low income means a lack of adequate demand for services. He
stated that such a lack of demand can be attributed to the failures and limitations of services from
current providers of such services. According to the House of Commons Treasury Committee
2005/06, banking services are central to the challenge of financial inclusion.

22
2.2.2.9 Lack of financial education
“A credit union also has an obligation to educate their members in effective and responsible
management of money, and credit unions offer debt and money advice to their members alongside
financial goods and services and insurance products” (Credit Unions Act 1979, cited in Commission
of Rural Communities, 2007). The absence of this will inevitably lead to an exclusion from financial
facilities and services.

2.3 Critical Success Factors of Financial Inclusion

For financial inclusion to be successful in a targeted area, there factors that need to be considered,
such factors like the customer considerations, availability of low cost services, wide spread customer
information and transparency on the part of the service providers, e.t.c. Certain sacrifices to meet
these needs also have to be made. The need for sacrifices is all due to the “flight in quality” of the
mainstream service providers. Kempson et al., (2000, cited in Sinclair et al., 2009) explained that the
financial needs of low income customers are regarded by many suppliers as uneconomic because their
needs are modest and the profit margins small.

Tagoe et al., (2006) gave several success factors as essential for a good and well conclusive inclusion
of individuals in the utilization of financial facilities and services. Having access to financial services
requires one to be well knowledgeable about the services at stake. There is a high requirement for the
availability of basic banking services.

Non-bank institutions like building societies have to be readily available as they are the bankers of
rural inhabitants. According to Tagoe et al., (2006), by increasing the availability of basic bank
accounts and increasing the capacity of credit unions to provide similar products will serve as critical
for the success of financial inclusion.

Bank branches and service points also have to be at strategic points for individuals to be able to locate
them. According to the World Bank financial access (2009), one of the main issues of financial
inclusion policies is the distance the individuals have to travel to be able to access these facilities.
Lewis (1955 cited in Nwachukwu & Odigie, 2009) noted that people would save more if saving
institutions were nearer to them than if they were farther.

Technological means like ATMs, Internet banking, debit cards and mobile banking facilities that
allow bank customers to easily reach and utilize banking can also be in place to help and encourage
people of the benefits of banking.

23
Banks can also reduce their levels of identification as some people mostly the unemployed and
homeless might not have adequate sources of proving their identity. It is also important to note that
such a bank policy should not be totally removed to ensure safety for all.

Unemployment is also a factor in financial inclusion. When one does not have an adequate and steady
source of income, there is no need to patronize banking services that encourage savings. The level of
charges that a bank offers can also be considered.

Figure 3: Financial Inclusion as a Generic Strategy

Quality Service Differentiation Low Cost Non-bank

Institutions

Focus
(Rural/Urban Poor)

Source: Porter (1980) Generic Strategy

2.4 Financial Inclusion as a Generic Competitive Strategy

The above diagram illustrates financial inclusion policy as a generic strategy. Porter (1980) created
three generic strategies; cost leadership, differentiation and focused strategy. In financial inclusion,
the first of the strategies can be expressed through non-bank or low-cost financial institutions e.g.
Microfinance banks, community banks e.t.c. The second is the differentiation strategy i.e. by
producing services which are perceived by the customers as unique or different through quality
services or through technology enhancements. The last of them is the focus strategy which states that
an organization should target a segment or a small market; by which in financial inclusion is done
through targeting the under-developed areas or unbanked markets.
According to Hansemark & Albinsson (2004), customer satisfaction and retention is an important
aspect in banking industry as customers tend to provide a large share of the profits.

2.5 Financial Inclusion as a means of reaching the Strategic Customer s

According to Johnson et al (2009), a strategic customer is one at whom the strategy is primarily
addressed to. It is good to note that the term “financial inclusion” is one usually used to address
development schemes. The opposite; “financial exclusion” is used to identify that under-developed
areas don’t have access to financial services. In market segmentation by geographic location of rural,
rural/urban and urban areas, financial inclusion stands as more effective in both the rural and rural
urban areas. Therefore, seeing these areas as opportunities is crucial for developing the appropriate
strategic capability.

24
2.6 Rural Financial Inclusion Policy as a Focus Strategy in bank
outreaching
Financial inclusion is aimed at a set of customers who, voluntarily or not, do not have access to
banking services. Porter, (1990) argues that focusing on a narrow segment or a niche of the market
will allow a firm to be better placed to meet the needs of the customers. In this case especially when
the financial exclusion could mainly be found in rural or underdeveloped areas of the world.

Figure 4: Rural Financial Inclusion Policy as a Focus Strategy in Bank

Outreaching
Differentiation Low-Cost
Strategy

Focus Strategy
Competitive Scope
(Rural/Urban Poor)

Source: Porter (1990) Generic Strategy

2.7 Financial Access

This is the ability to make use of financial services without experiencing any barriers to opening an
account or lending from financial institutions. Understanding levels of access may therefore require
insight of barriers to opening and using a bank accounts, such as cost and physical proximity of bank
service points (branches, ATMs, etc) and also accessing quality lending facilities. According to the
World Bank Financial access 2009, a very basic measurement of financial access can be derived
through the number of opened accounts across financial institutions and estimating the proportion of
the population with an account and also through the number of loans. Access to financial services is a
stepping stone towards both social and economic inclusion.

2.8 Quality Bank Service for Financial Inclusion

The European Commission Manuscript 2008 stated that financial products/services will be considered
appropriate when their provision, structure and costs do not lead the customer to encounter access
and/or use difficulties. These difficulties are caused by the characteristics of the products and the way
they are provided. The confidence that customers derive from the use and access of financial services
is one of the factors of financial inclusion. The nature of financial services and products is more of a
motivating factor of usage of such products and services than many other factors.

By differentiating, one is trying to make the quality of service provided to stand out of the ordinary.
Zineldin (1996, cited in Jama M.H 2010) said that banks need to focus on acquiring and maintaining
their market value by making sure that threats are not encountered by their competitors. All banks

25
have to realize that they have to maximize all possible benefits of their customers. One way of doing
this is by improving the quality of the services and products rendered. He also stated that the banks
that are likely to fail are those that don’t consider or prepare themselves to generate a competitive
spirit and to develop those differentiated strategies to make their position in the market stronger.

According to Jama M.H (2010), the main issue while looking at quality of service comes from the
economy itself and its operations. He added that the solution to the problem is to interlink more
significant factor like competitive ranking, customer relations with the quality of services.

According to Jobber (2004), making customer value the main focus of a firm enables them to attract
and to retain customer loyalty. The main objective is to provide the targeted customers with more
value added services. Once this is achieved, the firm adopts a marketing concept that takes customer
value in context. Therefore, an exemption of this method will very well lead to the path of exclusion
of financial credibility.

Yavas et al., (1997), investigated the effect of service quality on commitment. He stated that service
quality in the banking sector is an effective predictor of customer commitment. This sort of
commitment can also be interpreted as inclusiveness.

Mouawad and Kleiner (1996 cited in Al-Hawari et al., 2005), noted that it has been proposed that
customer perception and preference of service quality has a significant impact on banks success.
According to Sureshchandar G.S. et al., (2003), one way of critically evaluating the effectiveness of
banking in developing countries is through the research of the issue of quality of banking.

In the research of car servicing, Bouman and Van der Wiele’s (1992), identified three factors of
service quality in customer kindness, tangibles and faith, and stressing the importance of customer
kindness as the most important factor that creates a significant relationship.

Lewis and Soureli (2006 cited in Poolthong, Y et al., 2009), stated that certain unique characteristics
in the financial industry can affect how a customer evaluates a firms quality of service.

2.9 Success Factors of Service Quality

According to Phillip, Chang and Buzzell (1983, cited in Bolton and Drew 1991), companies have
become convinced of the strategic benefits of quality. As a result of this many literature has been
based on the measure of quality in their services. Parasuraman et al., (1988) used five factors to
measure service quality, namely: reliability, responsiveness, assurance, empathy and tangibles. This
has been the basis on which other works has been built. Sureshchandar et al. (2001) by criticizing the
above work identified five factors of service quality. These factors are:

26
2.9.1 Core service or service product
Product and service development are vital for growth of a firm or organization. “Perceived value of a
service is the customer’s overall evaluation of the utility of a product based on the perception of what
is given and what is received” (Zeithaml, 1988).
According to Gronroos (1987), most services are bundles of core, facilitating and supporting services.
In banking, the core service is the business that the bank carries out with its retail and small business
customers which is depositing and lending transactions. The level of a bank’s core performance is
measured by this.

2.9.2 Human element of service delivery

Sureshchandar et al. (2001) explains this to be all aspects that fall under the domain of the human
element i.e. reliability, responsiveness, assurance, empathy, moments of truth e.t.c. According to
Shostack, (1977), with services, each member of an organization represents the firm and defines the
product. “It is important to consider the role the employee behavior plays in the process of overall
service personality” Parasuraman et al., (1985). The human element is specifically explaining all
aspects of service that has to do with human beings. For example, according to the House of
Commons Treasury Committee 2005/06, people who do not have access to banking services are
limited to undertaking a wide range of financial transactions and those limitations are increasing as
such transactions are becoming sophisticated. Also, a customer’s assessment of the level of service
given to him is as a result of the warmly attitude that he is addressed with.

2.9.3 Systematization of service delivery: (non -human element)

According to Sureshchandar et al. (2001), this has to do with the process, procedures and the
technology that would make a service very attractive to the customers. He added by stating that
customers are always expecting their service to be at a high standard also that they be streamlined and
simplified without any hassles. Frei & Harcker (1996) made note of the importance of design and
implementation in the service delivery process. They noted that traditional studies measure the
performance of a firm by its ability to transform inputs into outputs and that they neglect the actual
way in which these inputs are transformed.
Roth and Jackson (1995) provide evidence that process, capability and execution are major drivers of
performance due to their impact on customer satisfaction and service quality. Therefore, a study of the
efficiency and quality of service organizations must focus on the role of process design and
performance. In the service delivery in the banking area, the process and technology is very important
because it can allow the firm to assess its operations and be able to make better adjustments for the
future.

27
2.9.4 Tangibles of service
According to Bitner (1990 cited in Jamal and Anastasiadou 2009) stated that customers make
inferences about the quality of service based on tangibles such as equipments, buildings and physical
layout that surrounds the environment. Wakefield and Blodgett (1999 cited in Jamal and Anastasiadou
2009) also found that the tangible aspect of a service environment was critically effective in the
response of the customers. In banking literature, Arasli et al., (2005) found that tangibles are
important indicators of customer satisfaction. Wong and Sohal (2003) said that it is the most
significant indicator of customer loyalty. Research from Wakefield and Blodgett (1999) has shown
that tangibles influence the customer’s responses such as pleasure, relaxation and feelings of
excitement. It was also found by Bang et al., (2005) that the use tangibles in advertising can help
improve the effectiveness of service advertising by reducing the amount of uncertainty involved.

2.9.5 Social responsibility

According to Zhonglei and Qigang (2008), corporate social responsibility means that the same time
that enterprises are creating profits and are being responsible to their shareholders; they should also
bear the social responsibility of their staffs, customers, community and environment. They stated the
importance of social responsibility in the quality of service when they stated that social responsibility
is subdivided into ten and products and service of sustainable development being one of them. A
banks quality of service and products owes it customers that social responsibility through quality
control and environmental protection. Amaeshi et al., (2007) noted that there are market benefits and
competitive advantage for firms whose business policy integrates corporate social responsibility.
Stafford (1996) reported seven distinct elements in bank service quality. The first one is “bank
atmosphere”: which is made up of cleanliness, as well as an overall positive and courteous attitude by
employees (kindness, friendliness, and pleasantness). The second is “relationship”: he indicated the
importance of a personal relationship with the bank employees, where customers are recognized easily
by long-term employee. The third is “rates and charges”: it indicates that low costs and high interest
rates can affect an individual's perception of bank service quality. The fourth is “available and
convenient services”: it indicates a full array of services that available, easily accessible and
convenient. The fifth element is “ATMs”: indicates available, convenient, and working automatic
teller machines. The sixth element is “reliability and honesty”: indicates the importance of a solid
bank rating and honest, reliable employee. And the seven one is “Teller”: indicates adequate and
accessible teller.

2.10 Bank Branches

Cohen et al., (2006), in their findings of customer satisfaction, wrote that the presence of bank
branches is essential for the convenience of customers. Becks et al., (2007) discovered a negative

28
relationship between barriers to banking access and bank branches. Financial inclusion entails the
access of basic services and as such bank deposits, loans, e.t.c. The deliberate expansion of these
branches, though quite costly will be one of the important measures to ensure an almost full banking
inclusion.

2.11 Automated Services

“Service organizations are increasingly utilizing advanced information and communication
technologies, such as the Internet, in hopes of improving the efficiency, cost-effectiveness, and/or
quality of their customer-facing operations. More of the contact a customer has with the firm is likely
to be with the back-office and, therefore, mediated by technology” (Froehle and Roth, 2004). They
constructed a usefulness belief model to explain that a customer will be more motivated to use a
service again when they benefit or derive value from it.
For financial inclusion to be possible to an extent there is the place of technology to aid the process. A
will find it easier using computerized and technology aided means of controlling his finances.

2.12 Quality Service as a Differentiation Strategy in bank Inclusion

According to Henry, (2008), the differentiation strategy involves the organization competing on the
basis of a service or product that is recognized by customers and they must be valued by the
customers. Differentiation strategy creates brand loyalty and it protects the organization from the use
of substitutes. Aaker et al., (1991 cited in Jamal. A 2009), said that greater customer loyalty can lead
to lower marketing cost and it is also important to brand equity, which in turn is significantly
important for creating differentiation and competitive advantage. Some financial institutions are
ranked on several criteria such as total assets, total earnings, credit and deposits. These rankings are
based on financial aspects and not on the quality of services rendered. An analysis on the service
quality aspect might give banks the details that will allow them to achieve competitive edge in
seeking new customer horizons. This supports that quality of service which is one of the ways with
which a firm can be differentiated. Banks should ensure that in administering the quality of their
services, that it be differentiated from that of its competitors to sustain competitive advantage in the
service department.

29
Figure 5: Quality Service as a Differentiation Strategy in bank Inclusion

Differentiation Low Cost

Competitive Advantage
(Quality Service) Strategy

Focus Strategy

Source: Porter (1990) Generic Strategy

2.13 The importance of Microfinance Institutions in Financial Inclusion

According to Conroy (2008), a lack of access to certain credit services is a constraint to many
especially the poor, a simple and direct remedy is to provide micro-loans to them. Aportela (1999)
defined increasing access of financial services to the poor as microfinance and stated that the
development of this type of institutions has been an active strategy/policy for most governments.
Microfinance is about providing financial services to the poor who are traditionally not served by the
conventional financial institutions. According to the World Bank Financial Access Survey 2009,
lower income clients are served mainly by nonbank financial institutions, including specialized state
financial institutions, and deposit- taking microfinance institutions.

2.14 Micro Finance as a Low Cost Strategy in bank outreaching

Microfinance institutions usually have a very high cost of operations due to the high level of human
intervention that is required to serve their clients. Leveraging on information and communication
technology, however, can, in the long term, significantly reduce costs of operations, which will go a
long way to ensuring sustainability. The micro finance system is characterized by three things and
they are; small amount of loans and savings provided; the absence of asset based collaterals; and the
simplicity of operations. In order for this to be possible, government has to implement some means of
generating funds that are not cost intensive. In the case of the Nigerian micro finance policy,
regulatory and supervisory framework, the government has put in place a public funded micro/rural
credit policies that is targeted at the poor.

30
Figure 6: Micro Finance as a Low Cost Strategy in bank outreaching

Differentiation Low Cost Strategy Competitive Advantage

(Micro Finance
Policies)

Focus Strategy

Source: Porter (1990) Generic Strategy

2.15 Financial Indicators of Financial Inclusion

Some monetary values can also be applied as a determinant of inclusion of the general public in the
use of bank facilities. Such values are in this position because of their meanings and what they
measure.

2.15.1 Currency in circulation to Money Supply

According to Simwaka (2006), currency in circulation can be used as an indicator of cash utilization
in two ways; i.e. share of currency in circulation in Money supply and in ratio of currency in
circulation gross domestic product (GDP) of a country. He said it is an indicator of transaction. He
stated that an increase in the currency in circulation denotes a decrease in the deposits and
subsequently available loans. The later sets have been stated by World Bank financial access (2009)
as a major indicator of financial inclusion.

2.15.2 Currency outside Banks to Money Supply

This is the amount of money that isn’t in the banking system but still going through some set of
transactions. This could be due to level financial accessibility of the public. The CBN annual report
(2008), defines this as an intermediation efficiency indicator. It stated this as an indicator reflecting
the level use of electronic forms of payment, particularly the use of ATMs and other card products as
well as improved banking habits among the public.

2.15.3 Currency Held by Banks

This is the amount of money held in the vaults of banks. A high value of this shows the amount of
deposits made by the public and the amount of loan able funds that are available.

31
2.15.4 Total Deposits & Loans
The World Bank Financial Access (2009) stated that the best indicator for measuring access to
financial services is the number of depositors and borrowers.

2.16 Covering unbanked areas as a competitive strategy for banks

According to Amaeshi et al,. (2007), it has been widely recognized that the increasing competition
among banks is causing them to seek new, more and effective unbanked customers to compete. By so,
supporting the neoclassical economic theory that states that the low-wage/cost areas offer a higher
return on investments. The banking arena is crowded by sophisticated customers who have clear
understandings on the financial products and services. These institutions should learn to understand
the potential of the unbanked areas. These areas have not been fully integrated. One of the measures
of financial performance is the amount of deposits that a bank can muster. According to the World
Bank (2009), in underdeveloped nations, the number of deposits per adult is lower than that of
developed nations. If these underdeveloped nations can reach those without bank accounts, this will
give them some reasonable competitive edge.

2.17 Problems in delivering to the unbanked

According to Eseigbes (2010), one of the supposed issues of consolidation is efficiency challenge.
The argument has been that bigger banks might not necessarily be more efficient, since they have no
incentive to improve efficiency within the limited competitive field. Observers of Nigerian banking
have noted that the big banks (perhaps because of the increase in the number of customers) have
slipped back to their erstwhile habits before the advent of the new generation banks. According to
Morawczynski, (2009), some of the problems of delivering to the unbanked areas of Africa could be
attributed to the fact that many preferred to keep their money in circulation rather than saving their
cash.

2.18 Assessing the Nigerian Banking System

According to Kendall et al., (2010) a necessary step towards achieving an inclusive financial system is
to evaluate its status in each country.

In other to help understand the position of the Nigerian banking industry in a case global competition,
the research uses Porters Diamond model in explanation. Assessing the position of the banking
industry is useful as it will help to gain insight on the ability and power of banks in total to carry out
their functions and ensure financial inclusion is increased in the country.

32
2.18.1 Porter’s Diamond Model
Porter (1990), states that the rule of competitive advantage of nations is the outcome of four
interlinked and advanced factors. He also said that these factors can be influenced by government of a
nation in a proactive way.

2.18.1.1 The strategy, structure and rivalry of firms

Porter (1990) stated here that it is direct competition that makes firms to work for increases in
productivity and innovation. The Nigerian banking industry has gone through reforms of
consolidation. This has caused the number of banks to shrink tremendously to 25 banks in total. This
amount of banks was derived from various mergers and acquisitions of both small and big banks.
With each banks meeting the capital base minimum requirement of 25 billion naira, the strength of
each bank is now thought to be almost equaled thus depicting direct competition and making rivalry a
lot stronger. Accord to Henry, (2008), the existence of strong domestic competitors is the most
important factor for the creation of competitive advantage. Competition of banks is more or less based
on the kind of value that customers perceive. This shows where the focus of each bank is directed
towards. The strategy that each bank uses is that which will create easy banking for the customers.
Strategic alliances have also been a method of growth for the Nigeria banking industry through
various mergers of banks. According to Adelakun .A (2009), it is a form of strategy used by firms to
be formidable in the global market and for increasing market shares. For the structure of banks, the
amount of branches has also grown considerably taking for instance First Bank of Nigeria PLC; one
of West Africa’s oldest and most influential banks. It has over 400 branches and still growing.

2.18.1.2 Demand Conditions

From understanding, the high demand of customers for a particular product/service has a very direct
effect on the quality of that service. According to Porter (1990), if the customers of an economy are
very demanding, the pressures facing firms to continue to improve their competiveness will be high.
This is also in line with Porters Five forces. Porter (1990) states that where there is a high
concentration of buyers this means that the bargaining power of the buyer is high. The Nigerian
banking industry is comprised of large amount of banks all supplying an almost similar level of
services and products. The cost of switching from one bank to another is relatively low. Therefore
banks are faced with the issue of working to continuously improve their quality of services so that
they can compete with for their customers. There is an adequate amount of growth in the middle class
of the set of people that reside in the country due to the increase in the demand for loans for
establishing business and also for transactions, speculative and precautionary motives.

33
2.18.1.3 Related Supporting Industries
Unfortunately, there is a small amount of match between the Nigerian banking industry and other real
sectors like the agricultural, manufacturing, communications, mining and others in terms of
investment opportunities and volumes of business. Porter defined this to be upstream and downstream
industries that facilitates the exchange of information, innovation and ideas. According to Uzor .M
(2006) one of the issues facing the Nigerian banking industry is that reforms and micro economic
policy measures are only limited to the banking sector and do not address the real sector-linked
challenges facing banks. He also noted that without a clear vision of where the other key economic
industries are headed and how far they can go the banking industry will have a limited impact. Even
with the amount of unrelated industries in the nation, the Nigerian banking sector has seen a lot of
positive changes in the past decade, this has been both profitable to the banks and the economy in
general, there have been rapid product development in the other industries and sectors making it
viable and able to compete with other international competitors. This is because the banking industry
is constituted by a large number of other related financial institutions. Such institutions like
Microfinance Banks (MFB), Development Finance Institutions (DFI), Primary Mortgage Institutions
(PMI), .e.t.c. with the Central Bank of Nigeria (CBN) as the apex bank.

2.18.1.4 Factor Conditions

According to Okuda and Saito (2001), the bank industry just like other industries can be thought as an
organization that uses factors of production as inputs and produces final services as outputs. Major
factors of production include raised funds, physical capital, and labor. Porter (1990) made note of
more specialized factors. This he stressed cannot be by any other and are difficult to duplicate. The
Nigerian economy is one that is dominated by oil and petroleum industry. The Governor of the
Central Bank of Nigeria; Sanusi (2010), stated that due to the fiscal policies in place, the excess
liquidity from the oil sector inevitably reached the domestic banking system causing an abundant
amount of capital. Along with the banking consolidations, the banking sector can boast of the speed in
credit creation. Bank deposits and credits have grown four-fold from the year 2004 to 2009 and
banking assets increased on average of 76% per annum. The economies abundance of oil is surely a
specialized factor.

Porter further noted the role of the government in his model. He stated that they serve as a catalyst
and a pusher of firms (in this case, banks) to raise their aspirations and grow to high levels of
competitive performance. The Nigerian banking industry has the Central Bank (CBN) as its Apex
bank; one that oversees all the affairs of the country’s financial position. As a bankers bank, the CBN
has a mandate to promote monetary stability and also as an advisor to the federal government.

34
According to the Fitch Ratings (2010), the Nigerian banking industry is historically weak and it will
be beneficial to the banks compliance functions to the set regulations of the CBN be strengthened.
According to Nigeria best forum magazine, the banking system is still highly risky and very low
compared to other banks of the world. In view of the above assessment, the Nigeria banking industry
is still an infant in the banking system. There quite a lot that needs to be done to ensure the general
effectiveness of banks to reach a high standard.

Figure 7: Porter’s Diamond Model

2.19 Competitive Advantage of the banking sector

In the writings of Landeiro de Vaz, J.J. (2000), size of a banking firm represents a source of
competitive advantage. He also said that if banking firms exist through imperfections in the
functioning of financial markets, the most appropriate strategy should consist in delving more deeply
into them in order to find dominant competitive positions which would enable them to obtain
extraordinary results. The absolute size of the institutions would be the most important competitive
advantage in this sector and the economies of scale and scope would assure the results of the financial
institutions and defense of their positions in this sector. He also stated that scrutiny of resources and
an analysis of organizational capacity would prove to be a conceptual frame and the reference
argument to enhance strategic behavior and the development of depository institutions like banks.
Therefore the success of the industry should not just be focused on absolute size but also on
efficiency. All these stipulate just how attractive the banking industry should be.

35
2.20 Solutions to Financial Exclusion
2.20.1 The E-banking Solution
“The mobile phone is having a dramatic effect on the lives of Africans and is proving to be a life-
transforming device. Limited by weak physical infrastructure but supported by their ingenuity, the
people of Africa are turning to mobile phones to improve their living standards. Banks are
recognizing the potential of the unbanked and are introducing resourceful methods of bringing them
into the formal economy on the back of mobile telephone.” (Standard Chartered Asia, Africa and the
Middle East; Guide to working capital Management 2009/10). The country has been encouraging the
use of telecommunication over the years since the year 2000. The country today has more than 30
million cellular subscribers. (See Figure 8)

Figure 8: Mobile Cellular Subscription per 100 people.

45
40
35
30
25
20
15
10
5
0
2001 2002 2003 2004 2005 2006 2007 2008

Source: World Bank Database.

2.20.2 Financial Education and Community Development

According to Oluba (2006), the Nigerian government’s pursuit of poverty reduction is in line with the
Millennium Development Goals (MDGs) and the National Economic Empowerment and
Development Strategy (NEEDS) driven reform programme as a sure medium-long term strategic
approach to financial inclusion for many Nigerians. One of the ways through which the government
has been involved in the inclusion of underprivileged in the financial sector activities is through
universal basic education. According to Oluba (2006), it is clear from sufficient evidence that
education is a major determinant of earning capacity of an individual. It is also a necessary condition
for understanding and use of financial institutions and processes to ones advantage.

36
According to the House of Commons (2006), financial advice would represent a key building block in
an effective financial inclusion strategy.

“Increasing enrollment in education should therefore increasingly produce more literate Nigerians to
work in the financial institutions; to earn more through improved skills and competencies; and
increase the awareness of the use of financial institutions and its products” (Oluba 2006). The literacy
rate in Nigeria is 68% making majority of the country’s citizens relatively uneducated.

2.20.3 Subsidized Credit Approach

According to McAteer, (2008), the main cause of exclusion is income/ asset related i.e. Large groups
of consumers cannot afford financial services. The general public can therefore be reluctant to engage
in any financial transaction which could be collecting of loans, depositing and savings because of the
cost of these services. According to the Zenith Economic Quarterly (2006), the amount of NGOs
involved in microfinance activities in Nigeria have increased significantly due to the ability of the
formal sector to provide services needed by the low income groups. These NGOs are charity based
and they obtain their funds from grants, fees, interest on loans and contributions from their members.
The Neoclassical economic theory states that all economic systems will eventually reach a natural
equilibrium where forms of capital will flow from the high-wage/cost to the low-wage/cost areas.
This could also be determined by the rate of interest provided both for loans and for deposits. The
deposit rate in Nigeria has been performing rather slowly and should be taken into account as it is
very important to the level of financial inclusion. This is because the higher the rates of depositing,
the more willing people are willing to save and the lower the lending rates, the more people are
willing to loan.

37
Figure 9: Nigerian Deposit and Lending Rate

Nigerian Deposit and Lending Rates:

(2001-2008)
45
40
35
30
25
20
15 Deposit Rate
10 Lending Rate
5
0
2001 2002 2003 2004 2005 2006 2007 2008
Deposit Rate 15.256 16.67 14.218 13.698 10.533 9.743 10.288 11.9708
Lending Rate 23.438 24.771 20.714 19.181 17.948 16.9 16.939 15.4798

Source: World Bank Database

2.20.4 Employment Creations

In Oluba (2006), he noted that the Nigerian government’s plans and macroeconomic reforms to
initiate more employment are targeted at improving the value-adding capacity and economic
profitability of the private sector; the growth of new firms particularly the small and medium scale
enterprises; as well as outright divestiture of the public sector from ownership of businesses is
expected to create more employment and financial empowerment.

2.20.5 Consumer Protection

As more people enter the financial system and credit products become more complex, regulations to
protect consumers need to be put in place. Bank customers need to be protected from over
indebtedness due to the high rates on lending or loss of collaterals. Bank customers also need to be
informed of the financial systems and transactions. This will help to increase financial literacy and
ease the entry of new customers. One way of ensuring the good flow of customer protection is by
adhering to a disciplined and transparent financial system and this can only be done through
supervision and regulation of the system.

2.21 Conclusion
Literatures have gone as far as recognizing the various success factors of a good financially inclusive
system in an economy in bank charges, complexity, economic status, service quality e.t.c. It is now
the time to test how significant they are. Plenty of literature have tested these factors on a large scale
and with cross country comparisons. The research will intend to answer all relevant questions related
to the topic.

38
As the concept of financial inclusion continues to gain ground, it has become much more critical to
estimate the level of which the public are being serviced financially.
The literature review explains the factors in general and tried as much as possible to structure them
accordingly. The literature review gave a brief account of the research problem stating that the issue
of financial inclusion as a symbol of financial deepening and a sign financial development. It looked
at the nature and developments of the Nigerian banking system. It gave evidence that the
Microfinance system is a tool to banking the unbanked. It explained the system of Microfinance in
Nigeria; stating its trends and geopolitical segmentation. This is in order to give a background on the
expected system of banking in Nigeria. It defines the terms that are involved in the research like
financial inclusion/exclusion. The research stated Kempson et al (2006) causes and types of financial
exclusion. It explained service quality as one of the major factors that drives financial inclusion.
The literature review explained the concept of financial inclusion in the context of Porter (1990)’s
generic strategy of low cost, differentiation and focus. It also assessed the nature of the Nigerian
banking system using Porter (1990)’s Diamond Model.
It finally gave a brief set of solutions that can be implemented to ease the level of financial exclusion,
while giving account to Nigeria.

39
 CHAPTER THREE

3.1 METHODOLOGY
Introduction
The task of actually selecting a method of research is the core of any dissertation. The chosen
methodology, when implemented needs to be able to answer the question at hand and also are in
accordance with the statement of the research.
This is an exploratory/deductive research. The objective is to measure the level of financial inclusion
in a small partial area. This chapter of the research seeks to use a mixed methodology to display the
main objectives of the research. According to Creswell et al., (2007), a mixed method research is a
research design with philosophical assumptions as well as methods of enquiry. Moon (2004) argued
for the application of mixed methodology and provides a paradigm for its defense. He stated that the
application of separate methods seeks to answer raised questions concerning the validity and
accuracy.
Bryman (2001, cited in Moon 2007) stated that the application of the two are equally informing.
Deetz (1996, cited in Krauss 2005), stated that different modes of research allows one to understand
different phenomena and for different reasons.

3.2 Research Paradigms

According to Saunders et al. (2003), a research philosophy has three main classifications; realism,
positivism and interpretivism.

According to Lythcott & Duschl, (1990, cited in Krauss 2005), qualitative research is based on a
relativistic, constructivist ontology that posits that there is no objective reality. Rather, there are
multiple realities constructed by human beings who experience a phenomenon of interest.

Positivism predominates in science and assumes that science quantitatively measures independent
facts about a single apprehensible reality. In other words, the data and its analysis are value-free and
data do not change because they are being observed. That is, researchers view the world through a
“one-way mirror” (Healy & Perry, 2000).

It is a position that holds that the goal of knowledge is simply to describe the phenomena that we
experience. The purpose of science is simply to stick to what we can observe and measure.
Knowledge of anything beyond that, a positivist would hold, as impossible (Trochim, 2000).

40
According to Healy & Perry (2000, cited in Krauss 2005) the factor that differentiates the positivists
from other researchers is that they separate themselves from the world they study.

“Interpretivism promotes the value of qualitative data in pursuit of knowledge” (Kaplan and Maxwell,
1994). Husserl (1965) stated that interpretivists believe that reality is not objectively determined but is
socially constructed.

Williams (2008) noted that it is often those who define themselves as interpretivists (as opposed to
more generic qualitative researchers) who deny the possibility of generalization. He followed by
stating that papers reporting on results of research using interpretive methods will make generalizing
statements about findings whilst not commenting upon the basis upon which such generalizations
might be justified.

He continued to say that interpretive research is similar to generalization since the later is taken in a
broad scientific sense to mean a general proposition.

The research is in place to employ a more interpretive approach of describing the state of financial
inclusion and its effects using a set of factors from an administered survey.

3.3 Research Approach

According to Saunders et al. (2003), the two approaches available for research are Inductive and
deductive approaches. The former being the invention of theory while the later is the application of
theory. This research aims at deducting theories and hypothesis in application to different scope.

The research is also administered in a qualitative form. According to Meyer et al (2003), the
qualitative approach focuses on words and feelings, the quality of an event or experience.

As a descriptive study and insight on a phenomenon, the research aims at shedding light on the
various factors of consumer behavior in access and use of financial services. The research will also
make use of quantitative values in describing the phenomena of the study, thereby making it a mixed
methodological approach.

41
3.4 Data Collection
In collection of data, the research makes use of a set of survey questionnaires to create primary data
and some secondary data from regulatory institutions. This is to validate in information and findings
that will be foundation of the research.

3.5 Data Analysis

The research is analyzed mainly with the use of questionnaire surveys. The sample size covers a large
number of people residing both in the UK and in Nigeria. The aim of the survey is an attempt to
determine the extent of financial inclusion/exclusion in both these countries for the sake of
comparison and recommendation. The results of the survey will be analyzed using statistical graphs,
charts and histograms which help in painting a vivid picture. These statistical instruments will then be
further explained with qualitative means. According to Jankowicz (2000), it will be helpful to have a
description of the sample responses followed by an indication of the existence of analytical statistical
measures.

3.5.1 Analytical Framework

From the literature review, it was seen that various critical factors have effects on the level of
financial inclusion/exclusion. Factors like income, employment, bank charges, quality services, level
of complexity, required identification, financial education, and level of physical access. This will be
administered through questionnaire survey to describe and weigh the importance and effects of these
factors to financial inclusion. The survey is also used to determine the type and extent of exclusion (if
any) that exists among these areas.

Using a survey from two distinct areas; Nigeria in comparison to the United Kingdom will be the two
sample sets. With the use of both primary and secondary data, the research aims to measure the level
of financial inclusion in these regions. The ability of the questionnaire to use comparison is in its
quality to identify easy comparators that match the two sets of population samples.

This technique of comparison might show a limited level of impact due to the differences in systems
and level of advancements in the two sets of populations. Therefore some of the indicators and factors
like household comparisons, and cultural differences might be inaccessible.

42
3.5.1.1 Measuring Financial Inclusion
The research employs various standard means of measuring financial inclusion with key indicators, in
accordance with Kaplan and Norton (1996, cited in Thompson, 2001), stating that organizations
should focus their efforts on a limited number of specific, critical performance measures which reflect
stakeholders’ key success factors. According to Kendall et al., (2010), a necessary step towards
achieving an inclusive financial system is to evaluate its status in each country. The research does this
through the analysis of set questionnaires to determine the levels of inclusion for each country.

3.5.1.2 Measuring Accessibility

According to the European Commission 2008, lack of access to a bank account can lead to additional
costs of operating a cash budget, such as bill payment or check cashing which can make a bad
financial situation became worse thereby making an individual over-indebted. In measuring the level
of accessibility the survey will try to cover factors as level of bank outreach by distance of bank
branches and accessibility to ATMs.
According to the World Bank financial access 2009, measuring the level of access in a country will
enable policy makers to be able to reach effective policies and track the progress of the their financial
institutions. It states that the first step is to start regularly collecting a set of standardized indicators for
all regulated financial institutions in a country. These indicators include the number of deposit
accounts and loans, the number of deposit clients and borrowers e.t.c. Among these the research also
employs the use of other indicators that measure various levels of financial deepening in a country.

3.5.1.3 Measuring Quality Bank Service

In measuring the level of service of banking, the research looks at factors used by Parasuraman et al.,
(1988) namely: reliability, responsiveness, empathy and assurance. This will be determined with the
use of the survey questionnaires. The purpose of this is to validate the place of quality service in
including individuals in the banking system.

3.6 Justification of UK in the survey

The UK economy is the sixth largest in the world. The service sector is 76.2% of the GDP. The UK
companies operating in the financial services market are noted for deploying generic marketing
strategies, particularly the Big 4 retail banks. There has been a large amount of enquiry into the level
of financial exclusion in the UK.
According to the Financial Times (2010), UK banking has experienced some improvements owing to
the reduction in loan impairment charges and to retail and commercial business. A country of
dynamism should be symbolic for comparison to a lesser state of economic level and also for the
purpose of research.

43
3.7 Justification of Nigeria in the survey
Nigeria is Africa’s most populous country. The Nigerian service sector is 32.5% of GDP. In order to
achieve gains in the all sectors, the Nigerian banking system has undertaken various reforms. One of
which is the Rural Access and Mobility project which aims to enhance rural mobility and access to
markets and services. In general the banking system in the country is seen to be very poor and needs
to be upgraded. Seeing its differences from that of the UK will be a point of contrast as to how in-
depth and how far along the country has come financially.

3.8 Questionnaire
The questionnaire was created based on some of the factors stated Kempson (2006) and other stated
literatures. A variety of response formats are used in the questionnaire. Formats like multiple choice
formats, ranked format, free choice format, and rating format. The questions will be administered with
the use of postal, email and internet mediums. This will allow a regulation of the various sampling
issues that are related with the various methods. Anderson and Gansneder, (1995 cited in Jankowicz,
2005) reported a 76% email return rate. According to Saunders et al., (2003 cited in Jankowicz, 2005),
the internet response has a reporting rate of 10% making it an unsuccessful medium.

3.9 Hypothesis
The research seeks to validate the effects of financial inclusion factors on the various levels of access
and use of financial services. Financial inclusion/exclusion is positively related the given factors. This
will be judged by the following criteria.
“Is a person’s level of financial inclusion/exclusion positively related to the banks charges and
rates?”
“Is a person’s level of financial inclusion/exclusion positively related with his/her employment
status?”
“Is a person’s level of financial inclusion/exclusion positively related to the quality of services
that he/her receives?”
“Is a person’s level of financial inclusion/exclusion positively related to the complexity of the
financial service?”
“Is a person’s level of financial inclusion/exclusion positively related to his/her level of financial
knowhow?”
“Is a person’s level of financial inclusion/exclusion positively related to his/her level of income?”
“Is a person’s level of financial inclusion/exclusion positively related to required level of
identification?”

Any objective results from the survey will be eliminated as an alternative hypothesis; ( ).

44
This will be further illustrated with the help of the findings.

3.10 Ethics
The aim of the research is to assess the general level of financial inclusion in Nigeria in comparison to
the level in the UK. The research would have liked to make it possible to include a postal medium in
the case of Nigeria, but due to the high amount of cost and time involved, the Nigerian survey was
limited to the email and internet medium. Still yet, the desired respondents will give a good account of
what is expected of the research. The research gave a careful statement of who the researcher is and
what the purpose of the questionnaire was for. Before the administration of the questions, it was made
clear that the study does not conflict with the general values.

The questions given will ensure the anonymity of the respondents thereby not providing any
information that will be detrimental or embarrassing to them.

3.11 Limitation
Given the time scale of the research, it was expected that the respondents had to complete the
questions promptly. Some of which had to be followed up to ensure due completion. Some
information that was required had some minor implications to respondent’s full corporation; this is
due to the ongoing level of identity theft in contention; others being reluctant to provide their levels of
income and employment status for the sake of embarrassment. Apparently, not all respondents were
corporative but given the measurement of the required sample size, the research cannot be said to be a
total floor.

3.12 Possible Sources of Bias

The research may face certain aspects of bias due to the method of questionnaire distribution. The
sample size may not reflect the nature of the research answer. Even so, secondary data will be used in
support of the research objective.

3.13 Conclusion
The purpose of this chapter is to broadly explain the methodology of the research. It starts by giving
an introduction to the implemented research paradigms. It states this to be an interpretive research
paradigm. It distinguishes the research as a mixed methodological approach through its adoption of
both qualitative and quantitative methods of interpretation.

It summarizes the data collection process as through the use of primary and secondary data;
attempting to validate the findings. Data will be analyzed on a comparative base between two large
sample sizes; Nigeria and the UK. The analytical framework will be based on factors that have been

45
explained in the literature review. All the factors are backed by a set of hypothesis which will help to
answer the research question.

46
 CHAPTER FOUR

4.1 DATA ANALYSIS

Introduction
This chapter is the descriptive interpretation of the data derived from the survey and a description of
various quantitative measures. According to Jankowicz (2005), the value of structured approach is
that it allows one to standardize questions making a more numerate statistical based analysis possible.
The research questionnaire aims at covering various factors using a set of structured questions. Some
of the questions are unnecessary to the research question but are useful to initiate the respondents into
the survey. The survey is drafted in two set of samples i.e. the UK and Nigeria. Questions were
directed towards eliciting each respondent’s level of financial inclusion or capability and the effects of
some factors on their inclusiveness. The factors covered are bank charges/rates,
economic/employment & income status, complexity of services, level of financial knowhow,
identification requirements and perception of quality of service. Each research relevant question will
be outlined statistically and described qualitatively.

4.2 Measuring Financial Access

To measure the levels of financial access, the research has analyzed the following:

4.2.1 Bank Account owners

The first step of financial inclusion is having access to banking services. In showing the amount of
people who had access to bank accounts, the survey gave the following results.

47
Q.1: Do you own a bank account?
Table 2 & 3: Data on Bank Account Owners
Nigeria: UK:
Bank Account Owners f % Bank Account Owners f %
Yes 52 100% Yes 72 90%
No 0 0 No 1 1.25%
Total Total Respondents 73 91.25%
Sample/Respondents 52 100% Total Sample 80 100%

The interpretation of the above shows that the Nigerian financial system has grown sufficiently that
all respondents owned a bank account of their own. Nigerians compared to the UK bank users all see
the need for a bank account as this is the first step towards an inclusive financial capability.

4.2.2 Use/Access to Microfinance/ Communi ty Banks

Assessing the use of microfinance banks in each country explains how in-depth the country’s
financial system is in cultivating people into financial inclusion. Using microfinance banks is an
instrument for increasing the public’s access to financial facilities. The respondents were given the
choice to select from a set of options (not mandatory) to choose the type of financial institution that
they use and have access to. They survey gave the following results.

Q. 4: Which one of the below best describes the type of financial institution that you
patronize?
Table 4: Data on Use/Access of Financial Institutions
Use/Access to Financial Nigeria: UK:
Institutions f % f %
Micro Finance Bank 9 17 29 36.25%
Commercial Bank 43 83 46 57.5%
Community Bank 0 0 5 6.25%
Total 52 100 80 100

48
Figure 10: UK Use/Access to Financial Institutions

Micro
Community
Finance Bank
Bank
36%
Commercial 6%
Micro Finance Bank
Bank
58% Commercial Bank
Community Bank

Figure 11: Nigerian Use/Access to Financial Institutions

Micro
Community Finance
Bank; 0% Bank; 17%

Micro Finance Bank

Commercial Bank
Community Bank

Commercial
Bank; 83%

From the above, the Nigerian context shows that most Nigerians from the survey choose to patronize
the use of commercial banks more than their choice for microfinance institutions or community banks.
This only shows that the growth of microfinance institutions though substantial has not been able to
reach a larger share of the public. The use of microfinance institutions as an instrument for financial
inclusion hasn’t fully been actualized compared to the UK where people show a general acceptance of
building societies and community banks.

4.2.3 Bank Distance and Access

Given the World Bank’s emphasis on bank distance and financial access, the research choose to
employ a set indicators stating the level of banking outreach, such indicators as the respondents’
perception of bank distance and cost intensity. The following questions were used in the analysis.

49
Q. 5: Rate the distance of your nearest financial bank from your place of residence.
Table 5: Data on Bank Branch Distance
Nigeria: UK:
Bank Branch Distance f % f %
Far away Distance 1 1 2% 6 7.5%
2 8 15% 11 13.75%
Average Distance 3 24 46% 28 35%
4 11 21% 31 38.75%
Very near 5 8 15% 4 5%
Total 52 100% 80 100%

Figure 12: Bank Branch Distance

Very near

UK
Average Distance
Nigeria

Far away Distance

0% 10% 20% 30% 40% 50%

The distance of the banks from the public is a factor to consider while estimating financial exclusion
but due to the increased use of technological means of banking, this is no longer seen as a
predominant factor. Seeing from the above, not many of the respondents demonstrate that the finance
institutions are actually near or far away for them to access them.

4.2.4 Access to Automated and Credit/lending Facilities

In order to assess individual access to credit facilities and to automated facilities, the questionnaire
comprised of a set of questions prompting the respondents to specify access or non-access to these
services and also from a list of multiple options to state reason(s) for non-access. The results of the
survey are as follows.

50
Q. 7: Does your financial institution provide automated services?
Table 6: Data on Automated Teller Providers
Nigeria: UK:
f f
Automated Teller
Providers % %
Yes 50 96.2% 70 87.5%
No 2 3.8% 10 12.5%
Total 52 100% 80 100%

Q. 8: If yes, do you use these services?

Table 7: Data on Automated Teller Users
Nigeria: UK:
f f
Automated Teller Users % %
Yes 34 65.3% 63 78.75%
No 16 30.7% 7 8.75%
Total 50 96% 70 87.5%

Q. 10: If you answered yes to question 8, are the automated teller services at your
disposal?
Table 8: Data on Availability of ATMs
Nigeria: UK:
f f
Availability of ATMs: % %
Yes 27 51.6% 57 71.25%
No 7 13.4% 6 7.5%
Total 34 65% 63 78.75%

51
Q. 18: Does your bank provide avenues for credit/lending services?
Table 9: Data on Providers of Credit Services
Providers of Credit Services
Nigeria UK
f % f %
Yes 49 94.20% 75 93.75%
No 3 5.80% 5 6.25%
Total 52 100% 80 100%

Q. 19: If yes, do you use these services?

Table 10: Data on Non-users of Credit Services
Non-users of Credit Services
Nigeria UK
f % f %
Yes 8 15.40% 27 33.84%
No 41 78.60% 48 60.14%
Total 49 94% 75 94%

The above illustrations are used to ascertain from the sample, the amounts of people of the two sets
are actual users of the given financial services of ATMs and credit services. From the tables, it shows
that 96% of Nigerian respondents who stated that their finance institutions provided them with
automated services; only 65% of them were actual users of these services. While for the case of the
UK respondents, a large amount of the respondents were users. The respondents’ perception of
availability of ATM services was smaller in Nigeria compared to the UK as a larger percentage of the
Nigerian ATM users stating that they were not readily exposed to the services.

In the use of credit facilities, the Nigerian respondents showed a high rate of non-users with 79% of
the 94% indicating that they do not use credit facilities.

This signifies a small view of the level of inclusiveness of the UK system compared to that of Nigeria
and stating that the UK public, generally are more financially inclusive than the Nigerians in terms of
availability of ATMs and credit facilities. The respondents also indicated on their perception of the
rates of interest as to high or low it is in effect of their use, but due to the fact that it is not of
importance to the research but in the findings can be used for further research. The proceedings of this
can be found in the research appendixes.

52
4.3 Measuring Financial Inclusion
The research sort to display from majority of respondents’ opinions; the reasons from given factors
for the lack of access and use of financial services. Given the questions, the survey shows the
following results:

Q. 9: If no, please select the reason that suits your situation more appropriately.
Table11: Data on Reasons for ATM Non-users
Nigeria: UK:
Reason for ATM Non-Users f % f %
Physical Disability 0 0 0 0
Lack of Knowhow 1 6.25% 0 0
Lack of Access 7 43.75% 2 33.3%
Over Complexity 11 68.75% 6 100%
High Amount of Charges 3 18.75% 2 33.3%
Unnecessary 7 43.75% 5 83.3%
Total Sample 16 181.25% 6 249.9%
Total Respondents 52 80

[Respondents selected more than one from a check box, so the percentage added up to more than a
100%]

Q. 12: Do you patronize the other products provided for you by your financial institution?
Table 12: Data on Users of other Bank services
Nigeria: UK:
f f
Use of other bank
services % %
Users 19 36.50% 27 33.75%
Non-users 33 63.50% 53 66.25%
Total 52 100% 80 100%

53
Figure 13 & 14: Users and Non-users of other Banking Services

UK Nigeria

Users
Users 36%
34% Users
Users
Non-users
Non- Non-
users users
66% 64%

Q.13: If no, please state which one of these reasons suits your situation.
Table 13: Data on Reasons for other Financial Service Non-users
Reason for other Financial Service Non- Nigeria UK
Users: f % f %
Lack of knowhow 4 12.12% 7 13.20%
High amount of charges 8 24.24% 24 45.28%
Unnecessary 25 75.76% 31 58.50%
Over complexity 11 33.30% 26 49.10%
Total frequency of Respondents 33 145.42% 53 166.10%
Total Sample 52 80

[Respondents selected more than one from a check box, so the percentage added up to more than a
100%]

From the above tables, respondents were made to choose from a multiple set of options, their
perceived reason for their exclusiveness. For the case of over complexity, the UK respondents showed
a higher indication of this as a factor as a 100% of them in the use of ATMs stated over complexity as
their reason and the Nigerian respondents showed an almost similar figure except for the unequal
amount of respondents. The aggregate of this factor backs the work of Kempson (2006) that the
breadth and complexity of banking services has undoubtedly contributed to banking exclusion in
highly banked countries. This allows the research to therefore state that the hypothesis;” Is a
person’s level of financial inclusion/exclusion positively related to the complexity of the financial
service?” will cannot be eliminated.

54
Looking into the case of lack of access, the set of Nigerian respondents indicated that as very much a
cause of their exclusiveness. According to Kempson et al, (2000, cited in Kempson, 2006), this due to
the increased competition of international banking and it tends to be prominent among the poor and
small rural communities. It coincides with what Kempson and Whyley (2000) called access exclusion.

The charges involved in the use/access of these services is not very well discovered but is significant
when seeing that a small amount of the respondents pointed out that this also is a cause of their
exclusiveness. The works of Kempson (2006) and that of Wallace and Quilgars, (2005) stated that the
fear and cost of getting overdrawn and incurring high bank charges was a major discouraging factor
for many people on low or modest incomes to manage their day-to-day finances. This also backs the
work of Kempson and Whyley (2000) as what they called price exclusion and occurs when services
are available but at prices that are unaffordable. From this the research chooses not to the hypotheses;
“ Is a person’s level of financial inclusion/exclusion positively related to the banks charges and
rates?” cannot be eliminated.

Some respondents in given their perceived reasons pointed out their reluctance in the use of these
services as they are unnecessary to them. This type of exclusion is what Kempson and Whyley (2000)
called self exclusion, when individuals voluntarily do not seek financial services. For the cases of lack
of knowhow, just one respondent from Nigeria pointed this out as a factor. Though not sufficient for
significance is very well a factor as many reports like that of the Norwich City council (2009)
pointing out the need for financial guidance and education to enable people to make better use of
financial services. With this, there is no significant evidence to acknowledge or eliminate the
hypotheses; “ Is a person’s level of financial inclusion/exclusion positively related to his/her level
of financial knowhow?”

55
4.3.1 Extent of Financial Inclusion
The research uses a set of indicators to help determine the extent of financial inclusion/exclusion that
is prevalent in the two sample sets. The results of the following are indicated below:

Q.14: Please state your level of familiarity of the following services.

Table 14: Data on Level of Familiarity of Loan Services
Level of familiarity of Banking Services
Loans
Nigeria UK
f % f %
Poorly aware 15 28.90% 11 13.75%
Fairly aware 12 23.10% 21 26.25%
Aware 18 34.60% 34 42.50%
Very aware 7 13.50% 14 17.50%
Total 52 100% 80 100%

Figure 15: Level of Familiarity of Loan Services

50.00%
40.00%
30.00%
Nigeria
20.00%
UK
10.00%
0.00%
Poorly Fairly Aware Very
aware aware aware

The table and diagram above shows in general the public’s perceived knowledge of loan services
granted by banks. The set of Nigerian respondents indicated a higher value for being poorly aware of
these services while the UK respondents showed a higher level of general awareness in the use of
bank loans. Seeing from this, the Nigerian banking system though growing hasn’t generally attracted
the knowledge of the public in the use/access and the benefits of the given service compared to that of
the UK.

56
Table 15: Data on Level of Familiarity of Internet Banking Services
Level of familiarity of Banking Services
Internet Banking
Nigeria UK
f % f %
Poorly aware 10 19.20% 1 1.25%
Fairly aware 17 32.70% 5 6.25%
Aware 11 21.20% 23 28.75%
Very aware 14 26.90% 51 63.75%
Total Sample 52 100% 80 100%

Figure 16: Level of Familiarity of Internet Banking Services

70.00%
60.00%
50.00%
40.00%
Nigeria
30.00%
20.00% UK
10.00%
0.00%
Poorly Fairly aware Aware Very aware
aware

In the use of internet banking, the Nigerian respondents indicated a lower level of knowledge while
the UK respondents showed that their awareness of this type of service is very high. According to the
Financial Times, (2010), online buying and selling has grown with the proportion having doubled
since the last four years in the UK.

57
Table 16: Data on Level of Familiarity of Mobile Banking Services

Level of familiarity of Banking Services

Mobile Banking
Nigeria: f UK: f
% %
Poorly aware 10 19.20% 14 17.50%
Fairly aware 14 26.90% 13 16.25%
Aware 15 28.90% 44 55.00%
Very aware 13 25.00% 9 11.25%
Total 52 100% 80 100%

Figure 17: Level of Familiarity of Mobile Banking Services

60.00%
50.00%
40.00%
30.00% Nigeria
20.00%
UK
10.00%
0.00%
Poorly Fairly Aware Very aware
aware aware

For the case of mobile banking inclusion, the Nigerian respondents share an equal level of awareness.
This could be because, many banks in Nigeria have imbibed the system to the public, with the rising
use of telecommunication in Nigeria since the year 2000 (check World Bank data base). And also the
partnerships between Nigerian banks with mobile network operators. The CBN (2009), in its
statement to the general public stated that it has recognized mobile telephony as a veritable avenue for
advancing financial inclusion and has moved to encourage the payment system through mobile
phones.

58
Table 17: Data on Level of Familiarity of Debit Card Services

Level of familiarity of Banking Services

Debit Cards
Nigeria UK
% %
Poorly aware 9 17.31% 0 0.00%
Fairly aware 11 21.15% 0 0.00%
Aware 16 30.77% 29 36.25%
Very aware 16 30.77% 51 63.75%
Total 52 100% 80 100%

Figure 1148: Level of Familiarity of Debit Card Services

70.00%
60.00%
50.00%
40.00%
Nigeria
30.00%
20.00% UK

10.00%
0.00%
Poorly Fairly aware Aware Very aware
aware

In the use of this type of service, the UK respondents are generally very aware of the system.
According to the Financial Times, (2010), debit card spending is on track to overtake cash spending in
the UK.

59
Table 18: Data on Level of Familiarity of Credit Card Services
Level of familiarity of Banking Services
Credit Cards
Nigeria UK
% %
Poorly aware 20 38.50% 8 10.00%
Fairly aware 16 30.77% 11 13.75%
Aware 10 19.23% 44 55.00%
Very aware 6 11.50% 17 21.25%
Total 52 100% 80 100%

Figure 1159: Level of Familiarity of Credit Card Services

60.00%
50.00%
40.00%
30.00%
20.00% Nigeria
10.00% UK
0.00%
Poorly Fairly Aware Very aware
aware aware

The Nigerian economy is still very much a cash economy with a high amount of the public unexposed
to the advanced technological system of banking. This is shown in the graph as the Nigerian
respondents indicated a high level of unawareness of bank credit card services.

60
Table 139: Data on Level of Familiarity of Bank Mortgage Services
Level of familiarity of Banking Services
Mortgage
Nigeria UK
% %
Poorly aware 31 59.60% 37 46.25%
Fairly aware 10 19.23% 27 33.75%
Aware 8 15.40% 11 13.75%
Very aware 3 5.77% 5 6.25%
Total 52 100% 80 100%

Figure 20: Level of Familiarity of Bank Mortgage Services

60.00%
50.00%
40.00%
30.00% Nigeria
UK
20.00%
10.00%
0.00%
Poorly aware Fairly aware Aware Very aware
:
According to the Financial Times, (2010), mortgage lending for house purchases in the UK has
increased since November, 2009. This indicates that the level of familiarity with the UK public of
such services is very dominant.

61
4.4 Effect of factors
Q. 16: In your opinion, do you feel that your employment status plays a role in your use/access of
these services?
Table 20: Data on Effect of Employment on Use/Access of Financial Services

Effect of Employment status on

use/access of Financial Services
Nigeria UK
f % f %
Yes 31 59.60% 46 57.50%
No 8 15.40% 16 20.00%
Don't know 13 25% 18 22.50%
Total 52 100% 80 100%

Figure 2161: Effect of Employment Status on Use/Access of Financial Services

60.00%
50.00%
40.00%
Nigeria
30.00%
20.00% UK

10.00%
0.00%
Yes No Don't know

A high response of the sample of both the UK and that of Nigeria agree that employment status has a
great effect to their exposure and use of financial services. With this slight significance, the research
designates that the hypotheses; “ Is a person’s level of financial inclusion/exclusion positively
related with his/her employment status?” cannot be eliminated.

62
Q. 17: In your opinion, do you feel that your level of income plays a role in your use/access of
these services?

Table 21: Data on Effect of Income level on Use/Access of Financial Services

Effect of Income on use/access of Financial
Services
Nigeria UK
f % f %
Yes 29 55.80% 43 53.75%
No 8 15.40% 17 21.25%
Don't know 15 29% 20 25.00%
Total 52 100% 80 100%

Figure 2172: Effect of Income Level on the Use/Access of Financial Services

60.00%
50.00%
40.00%
30.00% Nigeria
20.00% UK
10.00%
0.00%
Yes No Don't know

Respondents perceived their level of income, whether high or low to one of the major determinants of
inclusion into the use of financial services. This is also what Kempson (2006) stated that countries
with low levels of income inequality tend to have lower levels of financial exclusion, whereas high
financial exclusion is found in least equal countries. This affirms that the hypotheses; “ Is a
person’s level of financial inclusion/exclusion positively related to his/her level of income?” cannot be
eliminated.

63
Q. 21: In your impression, do you feel that the rate of interest and bank charges play a role in
your choice and use of the credit services?

Table 22: Data on Effect of Interest Rate and Charges on Use/Access of

Financial Services
Effect of interest rate and charges on use/access of
Financial Services
Nigeria UK
f % f %
Yes 37 71.15% 51 63.75%
No 9 17.31% 19 23.75%
Don't know 6 11.54% 10 12.50%
Total 52 100% 80 100%

Figure 23: Effect of Interest Rate and Charge on Use/Access of Financial

Services

80.00%
70.00%
60.00%
50.00%
40.00% Nigeria
30.00% UK
20.00%
10.00%
0.00%
Yes No Don't know

From the respondents, it is generally approved that bank charges and interest rates is a factor of
financial inclusion. The research no sees that the hypotheses, “ Is a person’s level of financial
inclusion/exclusion positively related to the banks charges and rates?” will not be eliminated.

64
Q. 24: In your own view, does the required identification deter you from accessing or using
bank services?
Table 23: Data on Effect of Level of Identification on Use/Access of Fi nancial
Services
Effect of level of identification on use/access of Financial
Services
Nigeria UK
f % f %
Yes 1 1.90% 0 0.00%
No 17 32.70% 43 53.75%
Don't know 7 13.50% 13 16.25%
Total Respondents 25 48.10% 56 70%
Total Sample 52 100% 80 100%

Figure 24: Effect of Level of Identification on Use/Access of Financial Services

60.00%
50.00%
40.00%
30.00% Nigeria

20.00% UK

10.00%
0.00%
Yes No Don't know

From the responses gathered, it is shown that required identification isn’t a limiting factor for
financial inclusion. The respondents from the sample sets indicated this from the illustration above.
Therefore the research eliminates the hypotheses; “ Is a person’s level of financial
inclusion/exclusion positively related to required level of identification?".

4.5 Measuring Service Quality

Q. 29: From the above questions (25, 26, 27 & 28), will you say that this has an effect in your
choice and use of bank facilities?

The quality of banking services has been stated as a driving factor towards financial inclusion. With
the help of certain questions from the sample, the research elicited how much of an effect this is on
the use and access of banking services.

65
Table 24: Data on Overall Perception of Bank Quality Service
Respondents Overall perception of Bank Quality Service
Nigeria UK
f % f %
Strongly
Disagree 1 1.90% 1 1.25%
Disagree 4 7.70% 0 0
Unsure 11 21.20% 18 22.50%
Agree 29 55.70% 48 60%
Strongly agree 7 13.50% 13 16.25%
Total 52 100% 80 100%

Figure 2185: Overall Perception of Bank Quality Service

70.00%
60.00%
50.00%
40.00%
30.00% Nigeria
20.00% UK
10.00%
0.00%
Strongly Disagree Unsure Agree Strongly
Disagree agree

Yavas et al., (1997), investigated the effect of service quality on commitment. He stated that service
quality in the banking sector is an effective predictor of customer commitment. The research elicited
from the sample, what effect this factor has on the respondents’ levels of use and choice of banking
services. A high proportion of them agree to this as a motivator to the use of banking services. It can
then be concluded that the hypotheses; “ Is a person’s level of financial inclusion/exclusion
positively related to the quality of services that he/her receives?” is significant.

4.6 Monetary Measures of Financial Inclusion

Some financial ratio trends can indicate the level and amount of financial deepening in a country.
Such ratios as money supply (M) to gross domestic product, currency outside banks (COB) to money
supply (M) and currency in circulation (CIC) to money supply (M).

66
Table 245: Monetary Measures of Financial Inclusion
2003 2004 2005 2006 2007 2008
M2/GDP Ratio % 20 19.8 19.3 19.5 28.1 38.1

COB/M Ratio % 20.8 20.3 20 16.2 12.7 9.7

CIC/M Ratio % 25.3 24.1 22.8 19.3 16.5 12.6

Source: Soludo, C. (2009) p. 5.

4.6.1 Ratio of Money supply to gross domestic product (M/GDP Ratio %)

According to the CBN (2008), this indicator measures the depth of the financial sector in banking and
shows the capacity of the banking sector to provide liquidity for the exchange of goods and services.
This is shown in the figure below.

Figure 196: Money Supply to GDP Ratio Percentage (%)

40
30
20 M2/GDP Ratio %
10
0
2003 2004 2005 2006 2007 2008

Source: Soludo, C. (2009) p. 5.

According to the central bank of Nigeria annual report (2008) and from the diagram, there is an
upward trend from 2006 till 2008. From the data, it shows improvements in the Nigerian financial
system to control funds and bank reserves to enable financial capability among the public as well as to
issue credit facilities and provide micro services.

4.6.2 Ratio of Currency outside Banks to Money Supply (COB/M Ratio %)

The CBN annual report (2008), defines this as an intermediation efficiency indicator. It stated this as
an indicator reflecting the level use of electronic forms of payment, particularly the use of ATMs and
other card products as well as improved banking habits among the public. This is illustrated in the
figure below.

67
Figure 27: Currency outside Banks to Money Supply Ratio Percentage (%)
9.7
2006 12.7
16.2
2003 20
20.3
20.8
0 5 10
15
20
25
COB/M2 Ratio %

Source: Soludo, C. (2009) p. 5.

Comparing the change from 20.8% in 2003 to 9.7% in 2008 shows a drastic improvement. This
displays that the Nigerian financial sector have seen the importance and have taken an initiative to
improve general capability of the public in the financial sector.

4.6.3 Ratio of Currency in Circulation to Money Supply (CIC/M Ratio %)

An increase in the currency in circulation indicates a decrease in the available deposits and loan able
funds. This is shown graphically for the case of the Nigerian financial sector.

Figure 2208: Ratio of Currency in Circulation to Money Supply (CIC/M Ratio

%)

30
25
20
15
10 CIC/M2 Ratio %
5
0
2003 2004
2005 2006
2007 2008

Source: Soludo, C. (2009) p. 5.

The diagram shows a decreasing trend of the ratio, signifying improvements in the banking sector
indicating the downward fall of the currency in circulation ratio to money supply and an increase in
loan able facilities to the public.

4.6.4 Loans to customers and Deposits

In order to guide monetary policy to encourage financial inclusion, the Financial Access (2009) stated
that regulators collect data on the values of deposits and credits. The progression of this is shown for
the case of Nigeria in the graph below.

68
Figure 29: Loans and Deposits to bank customers

2007
2006 Loans and Advances to
2005 Customers
2004
2003 Demand Deposits
2002
2001

0.00 1,000,000.00 2,000,000.00 3,000,000.00 4,000,000.00 5,000,000.00

Source: CBN Statistical Bulletin (2006/07), pp. 47-48

From the trend above, its shows a progression for the value of deposits and loans that has been
available for bank customers seeing the development of the banking financial sector in including the
public in the financial system.

The graph below shows the trend of loans and deposits that has been available for rural bank branches
in Nigeria. The graph shows an up and down progression for both cases. With deposits growing

Figure 30: Loans and Deposits from Rural bank branches

2007
2006
Loans to Rural Branches By
2005
Banks
2004
Deposits of Rural Branches
2003
By Banks
2002
2001

0.00 10,000.00 20,000.00 30,000.00 40,000.00 50,000.00 60,000.00 70,000.00

Source: CBN Statistical Bulletin (2006/07), pp. 47-48

4.7 Summary of Findings

The research began with tabular illustrations showing various frequencies of respondents answering
of the administered questionnaires. This was followed by various graphical and chart illustrations of
the findings. The findings were grouped into various segments for clearer understanding. These
grouped segments were; (i) measuring of financial access through indications of bank accounts
ownerships and the distance of the banks from the respondents; (ii) reasons/causes for the respondents
exclusion from services like ATMs and other bank services; (iii) levels of awareness of the different
types of basic bank services; and (iv) using various indicators of country financial deepening.

69
In measuring financial access, the research looked at the respondents who indicated that they had
access to bank accounts. The findings from this was deducted that almost a total amount of the sample
had access to a bank account. The subgroups segmentations of the findings into age groups, sex and
monthly income are illustrated in the appendixes.

The research also validated the existence of various types of exclusion like; self exclusion, access
exclusion and price exclusion. This was ascertained in the findings that some of the reasons for
exclusion from the sample are high amount of charges, over complexity and lack of access.

It was deducted from the findings with the use of superlative opinion that the factors; bank charges,
service quality, income and employment status are critical to the levels of financial inclusion and
exclusion except for the factor of required identification. According to Honohan and King (2009) the
reasons that non-users give for not accessing bank services could be useful to drive market research
and market development.

The expansion of financial inclusion/exclusion of each set of samples could only be determined from
the questions attaining their level of familiarity with certain various services like mobile banking,
internet banking, loans, debit cards, credit cards and mortgage. With this method, it was deducted that
the Nigerian respondents showed a lower level of familiarity to the normal accustomed banking
services except in the use of mobile banking which is a rising means of banking in Nigeria.

In the use of country indicators of financial depth, the research sort to display the level of financial
access and inclusion in the Nigerian system of banking. This is not a significant proxy for displaying
financial inclusion, but with the combination of the survey, one can envision the extent of financial
access in the Nigerian system.

The research was based on previous works from literatures of Kempson et al., (2000), Kempson and
Whyley, (2006), Kempson (2006), Honohan and King (2009) e.t.c.

The summary of the findings can be useful for further research with surveys taking into consideration,
overall population of the country of study, division of survey into household study and also a look at
the supply side of problem of financial inclusion i.e. from the perspective of the service providers.

70
 CHAPTER FIVE

DISCUSSION, RECOMMENDATIONS and CONCLUSION

5.1 DISCUSSION
The results of the survey suggest that developing countries have lesser financial capability and access
than compared to the more developed nations; in this case it was in the study of the UK and Nigerian
point of view. This is shown from various factors like the display of utilization microfinance service
where the Nigerian respondents showed a low appreciation of this type of institution with only 17% of
respondents. This can be interpreted to mean a low penetration of the micro service into the financial
system and a less acknowledgement of microfinance as an effective tool and instrument of financial
inclusion. For the extent of financial inclusion, the UK showed a high penetration as all respondents
were familiar with the services that they were asked to identify. The respondents were asked in the
research questionnaire to give indications on their levels of familiarity with services like mobile
banking, internet banking, loans, mortgage, debit cards and credit cards. For the case of internet
banking, 19.2% of the Nigerian respondents demonstrated a poor level of awareness in internet
banking (26.9% showed high awareness) while the UK respondents showed a lower level with 1.25%
(63.75% showed high awareness). 19.2% of the Nigerian respondents gave a poor awareness for
mobile banking (25% showed high awareness), while 17.5% of UK respondents showed that they
have a poor awareness of that service (11.25% showed high awareness). Finally, in the case of poor
awareness of mortgage services, 59.6% of Nigerian respondents were confirmed (5.77% showed high
awareness), while 46.25% of UK respondents indicated that they were poorly aware of the services
(6.25% showed high awareness). Knowing the extent of exclusion in a country helps policy makers
and service providers to proceed more strategically at tackling the problem. This type of information
coupled with market segmentation research can give room more developments.

Asking the question of if an individual utilizes a product or service helps the research to state that
he/she is financial included in that product. This is the snapshot of the topic as this informs about
levels of exclusion or inclusion. The research acknowledged prior statements of Kempson (2006),
about the causes of financial exclusion. This can be a drive towards more marketing development by
providing the respondents with questions about the causes of their exclusion. By deriving the causes
of exclusion, the research also displays what type of exclusion. For example, an individual might
experience financial exclusion due to the high amount of charges. As shown in the investigation,
78.6% of Nigerian respondents answered, that they do not use credit services and 18.75% of them
stated that they do not use them due to the high amount of charges. This was interpreted to be the type
of exclusion that Kempson (2006) called price exclusion. This tells those involved that cost of

71
services require some subsidizing and emphasizes the importance of micro credit and services. For the
case of respondents that linked their reason for inaccessibility to the reason of lack of knowhow, (for
example; 6.25% of the Nigerian non-user respondents indicated this to be their reason for exclusion in
the use of ATMs), this is interpreted to mean a presence of a lack of financial education. 43.75% and
33.3% of both Nigerian and UK non-user respondents gave their reasons to be lack of access of ATM
services. This is interpreted to be a low level of penetration in that respect and is interpreted to
represent what Kempson and Whyley (2000) called a state of access exclusion. This research also
found some reasons to be linked to the over complexity of the services (33.3% of Nigerians and
49.1% of UK non-user respondents stated this as a reason for non-utilization of other services). The
research interpreted this to be due to the increased level of developments in the financial sectors and
financial liberalization. The research also noted a case of respondents being self exclusive stating that
they found some financial services unnecessary with 75.76% and 58.5% of Nigerian and UK non-user
respondents indicating this.

The research was constituted of various questions patterning to the effects of certain factors like
interest charges, economic status of employment and income as well as amount of required
identification. These factors are defined as limiting factors that cause a state of exclusion. The
research tested just how true it is in the cases of the two sample sets. It was established that interest
rate, and economic status both have existing effects on the level and extent of financial
inclusion/exclusion. 56.9% of the Nigerian respondents and 57.5% of the UK respondents agreed that
their employment factor has an effect on the access and use of financial services (15.4% and 20% of
Nigerian and UK respondents respectively disagreed to this effect). Contrary to the amount of
significance of the previous factors, the factor of amount of identification was highly negative with
1.9% of the Nigerian and 0% of UK respondents stated positive to this effect (32.7% and 53.75% of
both Nigerian and UK respondents stated that this had no effect).

The research, on indicating the significance of quality service in financial inclusion, included various
questions that are an indication of bank customers’ perception of quality service. Such questions
indicated a show of banking empathy, responsiveness, and soundness. These are some of the success
factors of quality service indicated from the literature review. In summation of the above, the
respondents were stated to indicate the effect of such factors in the use and accessibility of financial
services. 55.7% and 60% of Nigerian and UK respondents agreed to the effects of these factors.

In summation of the findings, the research chose to state the significance of the following hypotheses
criteria;

Is a person’s level of financial inclusion/exclusion positively related to the banks charges and
rates?

72
 Is a person’s level of financial inclusion/exclusion positively related with his/her employment
status?

Is a person’s level of financial inclusion/exclusion positively related to the quality of services that
he/her receives?

Is a person’s level of financial inclusion/exclusion positively related to the complexity of the

financial service?

Is a person’s level of financial inclusion/exclusion positively related to his/her level of financial

knowhow?

Is a person’s level of financial inclusion/exclusion positively related to his/her level of income?

And to eliminate the stated hypotheses question:

Is a person’s level of financial inclusion/exclusion positively related to required level of

identification?

The expansion of inclusion/exclusion in Nigeria was further demonstrated with ratios of currency in
circulation to money supply (CIC/M Ratio %), money supply to GDP (M2/GDP Ratio %), and
currency outside banks to money supply (COB/M Ratio %). This was to provide a look at the
financial deepening of the Nigerian banking system.

5.2 RECOMMENDATIONS
According to Duncombe and Boateng (2009), the significance of effective deprivation assessments of
financial services before adopting new innovations is emphasized by Hulme & Mosley (1996), and it
is noted by Matin, Hulme & Rutherford (2002) and Ghate (1992) that the people; especially the poor
tend to have little interaction with formal financial institutions and systems. By providing a snapshot
of the level of financial inclusion in a country, one is contributing to further research into illuminating
and solving the generally acclaimed problem. Researches can look into the issue and compare other
countries into various single benchmarks. It provides the policy makers with the answers to the
questions and the factors that they need to tackle in order to administer full growth in both economical
and sociological aspects of the nation. Total financial inclusion is a target that all governing bodies of
a country drive to attain. It is a display of the effect policy application that has been applied which has
been targeted at the general welfare of the public. Various national authorities can use this information
to effective construct policies.

73
As apex institutions look into the ratios of financial deepening such as currency in circulation to GDP,
this informs them of the results (whether a growth or a decline) of their financial improvements and
the general capability of the public. Financial providers can use the acquired data to look for better
ways to link their need to make profit with also their obligation for better welfare. This can be done
by reducing the barriers of financial access to the general public on equal grounds whether the poor or
the more comfortable groups. They can utilize the information of financial inclusion for the positive
promotion and construction of marketing initiatives i.e. through the use of subsidies and incentives
that can be targeted towards the subgroups of age, sex, educational levels, occupational groups, e.t.c.
This will enable them to make effective and innovative solutions. General information on cross
country financial inclusion can help drive international finance to other country markets. It can
provide the institutions that drive to carry their brand names from one country to the other to foresee
the benefits of their products in other markets and helping them to derive what opportunities that
awaits. For example, knowing the level of penetration of mobile phone banking in a host country can
give a home country institution an insight of how accessible and compatible their mobile banking
competencies will be in the host country.

Other researches can utilize the topic of financial inclusion in a more market drive inquisition. This
can be in terms of consumer behavior and customer satisfaction of financial services. Researchers can
apply a more informatory method of data accumulation while looking into aspects such as the demand
and the supply sides of the topic. In tackling the problem, it is important to note that the issue comes
from both the individual, household and providers point of view. Acknowledging comments and data
from all three sources will drive for higher levels of development.

The information on financial inclusion can also be useful to the general public helping them to
comprehend the importance of such financial services and products. They may also use information
on the causes and effects of lack of access to better position themselves for better access to these
opportunities.

5.3 CONCLUSION
Due to the limited capability of the researcher to administer other methods of analysis, they were
various limitations to this research. It would have been more informatory to use more informative to
display the findings in a representative selection of factors like geo-political region, sex, occupation
e.t.c. The research employed a simple random sample but future research can take this into
consideration. Future research can also take into revaluate the size of the sample as the implemented
sample size of the research may not be significant and so results do not give a clear account of the
situation. Also the method of data collection can also be questioned due to the inaccessibility of the

74
targeted sample; the research employed data collection from the use of mail questionnaires and the
internet medium. This doesn’t undermine the objective of this academic research, but serves as a
guide to further researches and a broader look at the financial inclusion in more developing and
underdeveloped countries.

75
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77
Appendix A: Sample of Research Questionnaire

Questionnaire; Assessing Financial Inclusion

I am currently conducting a survey to complete my dissertation in MA International Business at Leeds Metropolitan
University, UK. The purpose of this questionnaire is to measure the level of financial accessibility among the Nigerian
public. I would be most grateful with your corporation. I assure you that none of them require any personal information
that could be detrimental to you. Any information that is given here is assured to be treated as confidential. Please,
deliberately complete all questions in this questionnaire in order to have precise and accurate research. Thank you so much
for your participation. IBEACHU HENRY EBUKA (Please try as much as possible to answer each question accurately. If
you encounter any problem on filling the form, it is best you refresh the page to start over. Thank you)
* Required

Location: *
Gender:

 Male

 Female

Age:

 18-24

 25-30

 31-36

 37 and above

Employment Status

 Employed

 Unemployed

 Retired

 Part-Time employed

Monthly Wage Level

 Less than 18,000

 18,000 - 50,000

 50,000 - 100,000

 100,000 and above

1. Do you own a bank account? *

 Yes

 No

2. What type of account best describes yours?

 A savings account

 A current account

77
3. Is the account useful to your financial needs and achievements?

 Yes

 No

4. Which one of the below best describes the type of financial institution that you patronize?

 Micro finance bank

 Commercial Bank

 Community Bank

5. Rate the distance of your nearest financial bank from your place of residence
1 2 3 4 5
Far away distance Very near
6. Is the distance to the bank of your choice cost intensive?

 Yes

 No

7. Does your financial institution provide automated teller services (ATMs)?If no, skip to Q. 12

 Yes

 No

8. If yes, do you use these services? If yes, skip to Q. 10 & 11 or If no, skip go to Q.9 and then to 12 continued.....

 Yes

 No

9. If no, please select the reason that suits your situation more appropriately. You may select more than one answer

 Physical Disabilities

 Lack of knowhow

 Lack of access

 Over complexity

 High amount of charges

 Unnecessary

10. If you answered yes to question 8, is the automated teller service at your disposal?

 Yes

 No

11. How often do you use these automated services?

 More than once a week

 Once a week

 One a month

77
 Once a year

 Don't know

12. Do you patronize the other products provided for you by your financial institution? If Yes, skip to Q. 14

 Yes

 No

13. If no, please state which one of these reasons suits your situation. You may select more than one answer

 Lack of knowhow

 High amount of charges

 Unnecessary

 Over Complexity

14. Which of these services can you state that you can identify with?
Poorly Fairly Very
Aware
aware aware aware
Loans

Internet Banking

Mobile Banking

Credit Cards

Debit Cards

Mortgage
15. Do you feel you need to be educated by the banks for you to be compatible with these services?

 Yes

 No

16. In your opinion, do you feel that your employment status plays a role in your use/access of these services?

 Yes

 No

 Don't know

17. In your opinion, do you feel that your level of income plays a role in your use/access of these services?

 Yes

 No

 Don't know

18. Does your bank provide avenues for credit/lending services?If no, skip to Q. 24

77
 Yes

 No

19. If yes, do you use these services?If no, skip to Q. 24

 Yes

 No

20. If yes, how will you rank the rate of interest that is being charged to you?

 Very Low

 Low

 Moderate

 High

 Very hIgh

21. In your impression, do you feel that the rate of interest and bank charges plays a role in your choice and use of the
credit services?

 Yes

 No

 Don't know

22. Does your finance institution require some documentation/identification before you are permitted to access/use the
bank facilities?

 Yes

 No

 Don't know

23. If yes, how will you rate the amount of documentation and identification required for using and accessing bank
services?

 Highly Irrelevant

 Slightly irrelevant

 Relevant

 Very Relevant

24. In your own view, does the required identification deter you from accessing or using bank services?

 Yes

 No

 Don't know

25. Given the recent questions about banking, would you say that your choice financial institution is sound and reliable?

 Strongly disagree

77
 Disagree

 Unsure

 Agree

 Strongly agree

26. Having come in contact with the personnel of your choice financial institution, how will you rank their receptiveness?

 Unemotional

 Fairly receptive

 Very receptive

27. When you have a problem, your financial institution shows full interest in resolving it.
1 2 3 4 5
Strongly Disagree Strongly Agree
28. How will you rate the quality and process of services delivered to you?
1 2 3 4 5
Very poor Very good
29. From the above questions (24, 25,26 & 27), will you say that this has an effect in your choice of bank?

 Strongly Disagree

 Disagree

 Unsure

 Agree

 Strongly agree

Thank You..
Submit

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77
Appendix B: Research Proposal

Dissertation Research Proposal

Leeds Metropolitan University

MA International Business

Solving the Problem of Inflation in Nigeria:

Justification of Inflation Targeting For Monetary Policy.

Supervisor: Mr. Peter Chippindale

77
Table of Content

1. Working Title………………………………………….………………………................................3

2. Introduction:………………………………………………………………………………………..3

3. Aim and objective:………………………………………………………………………………….4

3.1. Hypothesis:………………………………………………………….…………………………4

4. Conceptual Framework:………………………………………………….………………………..4

5. Methodology…………………………………………….………………….….…...........................6

5.1. Research Design: … .……..…………………….…………………………………………..6

5.2. Research Sample:……………………………………………………………….………….6

5.3. Data Collection: ………………………………….………………….………......................6

5.4. Data Analysis: …………………………………………………………………..…………..7

7. Time Scale: …………….………………………………………………………………………......7

8. Limitation:…………….……………………………………………………………………….……8

9.
Bibliography:……………..……………………………………………………………………….....9

77
1. Solving the Problem of Inflation in Nigeria: Justification of Inflation Targeting For Monetary
Policy.

2. Introduction:
Currently, one of the major problems facing the world is the talk of recession. Nigeria is one country
that is facing an excessive period in inflation. Inflation has been moving upwards in recent times in
Nigeria. At the moment, the country has a double digit inflation level and the economic team does not
appear to have the tools to building a viable economy where local resources would enhance economic
growth. This is a display of difficult times ahead if nothing serious is done to tame inflation in
Nigeria. Nigeria’s inflation currently ranks 198 in the CIA 2009 world fact-book. One way of
achieving and maintaining a low and stable rate of inflation is for a Central Bank to have price
stability as the heart of its monetary policy. When the main focus of a CB’s monetary policy is
narrowed towards the pursuit of a low level of inflation, such a policy is regarded as inflation
targeting. Many CBs have taken up the inflation targeting as their long-term objective. According to
Oluba (2008), high and variable inflation rates are very economically and socially costly because it
distorts prices, lowers savings and investments. High inflation rates reduce the peoples’ purchasing
power and retards economic growth.
According to Belongia & Batten, (1992), because a central bank only has one policy lever this implies
that it can (and should) pursue one long term objective. In 1990, the New Zealand central bank started
to adopt a monetary policy of inflation targeting. The idea of targeting inflation as a major objective
of the CB came with great benefits. It has enormous potential as an effective instrument of managing
inflation. The country needs to carefully evaluate the most up-to-date evidence in developing
economic policy. A more interventionist, directional economic policy stance should be adopted by
Nigeria. Seeing that many nations that adopted this method of monetary policy regime never went
back on it, this has caused Nigeria to carry up the same mantle. In Nigeria, the macroeconomic
objective of the central bank was that of price stability through the intermediate targeting of M2
monetary aggregate. Given the continuous upward move of the inflation rates and the issues that come
with it, it is liable that the CB rethinks its method of monetary policy adoption.
Inflation targeting entails five main elements: The public announcement of medium-term numerical
target(s) for inflation, institutional commitment to price stability as the primary goal of monetary
policy (to which other goals are subordinated; an information inclusive strategy in which strict
variables and not just monetary aggregates or the exchange rate, are used to decide the setting of
policy instruments; increased transparency of the monetary policy strategy through communication
with the public and the markets about the plans, objectives, and decision of the monetary authorities;
and increased accountability of the central bank for attaining its inflation objectives. Under this
framework, the central bank must make the inflation target its overriding objective and as such work
to contain IT within the target range anytime inflation threatens to exceed the permissible range.

77
3. Objectives and Aims:
The research will be in place to meet the objective of looking at ways that the CBN can solve the
issue of inflation in Nigeria. As well as display a more understanding on the current debate of
Inflation targeting and how it can be beneficial to the country’s economic condition.
 To provide information that will be useful to policymakers who must weigh the costs and
benefits of the current inflationary pressures in contrast to a severe recession.
 To access the validity of adopting Inflation targeting as the monetary policy objective by
trying to display the Nigerian banking system in correlation with the prerequisites of adopting
inflation targeting.
 To compare different CBs adopting the policy of inflation targeting to identify it as a success
tool.
 To conduct a careful study of the impact of inflation on Nigerian economy.
 To use quantitative skills in revealing the correlation between the inflation targeting tools and
their impact on actual inflation rates and comparing the different rates.

3.1. Hypothesis:
The research will be in place to test on the following hypothesis:
: The level of inflation is directly correlated with the level of output in Nigeria.
: The level of inflation has no direct correlation with the level of output in Nigeria.

4. Conceptual Framework:
Debates over targets and structure of monetary policies are as old as the economic systems that
engender them. According to Oluba (2008), many conclusions have been made that countries that
adopt inflation targeting were resulted with low level of inflation and volatility. Ball and Sheridan
(2003, cited in Oluba, 2008), noted that in majority of some other countries it was found that inflation
targeting wasn’t responsible for their economic turnaround as there was no evidence that it improves
economic performance as measured by the behaviour of inflation, output and interest rate.
The Marxian theory of inflation states some factors that affect prices:
 The rise or fall of value of a commodity will affect its price, though price and value are
not necessarily identical.
 Government subsidies can keep the price of a commodity below the level which, but for
the subsidy, it would sell.
 One factor which affects the general price level centers round the currency.

The Keynesians school postulates that the relationship between changer “in the quantity of money and
prices is non-proportional and indirect through the rate of interest. Essentially, the Keynesians theory
examined the relationship between the quantity of money and prices both under unemployment and

77
full employment situations. In other words, so long as there is unemployment output and employment
will change in the same proportion as the quantity of money.
Stock and Watson (1999) used the conventional Phillips Curve (unemployment rate) to investigate
forecasts of the United States inflation at the twelve-month horizon. Specifically, they found that
inflation forecasts produced by the Phillips Curve generally had been more accruable than forecasts
based on other
macro economic variables, including interest rates, money and commodity prices but relying on it to
the exclusion of other forecasts was perhaps, a mistake.

Lim and Papi, (1997) studied the determinants of inflation in Turkey by analyzing prices
determination within the framework of a multi- sector macroeconomic model (1970- 1995). By
incorporating both long and short run dynamics comprising the goods, money, Labor and external
sectors, they concluded that policy makers commitment to active exchange rate depreciation on
several occasions of the past fifteen years) had also contributed to the inflationary process.

Callen and Charge, (1999) modeling study revealed that Reserve bank of India had shifted from
browed money target toward a multiple indicator approach in the conduct of monetary policy. Their
findings indicated that exchange rate and import prices where relevant for inflation and that
developments in the monetary aggregates remain an important indicator of future inflation.

Williams and Adedeji (2004) found that the major determinants of inflation were changes in monetary
aggregates, real output, foreign inflation and the exchange rate.
Regionally, in Africa, Chibber et, al. (1989) employed a highly disaggregated econometric model for
Zimbabwe and found that monetary growth, foreign prices, exchange rates, interest rates, unit labor
cost and real output are the key determinants of inflation in that country.

Olubusoye and Oyaromade (2008) analyses the main sources of fluctuation in inflation in Nigeria
using the framework of error correction mechanism, it was found that lagged consumer price index
(CPI), expected inflation, petroleum prices and real exchange rate significantly propagate the
dynamics of inflationary process in Nigeria.

The New Phillips curve which was supposed to identify the correlation between wage rate increase
and unemployment was further modified to keep up with inflation. The equation which was
previously stated numerically as: has been changed to introduce the role of
inflationary expectations. Consequently, expectations augmented wage Phillips Curve is produced:
= - f(u) + .

77
( ) being the growth of money wages per employee is: ) when it is tried; increases and falls
with unemployment rate (u). In explaining the role of inflation, it then includes ( ) inflationary
expectation. This inclusion implies that actual inflation can feed back into inflationary expectation
and thus cause further inflation.

It is good to note that all the previous works of these authors have all been aimed towards solving the
issue of inflation and ensuring price stability.

5. Methodology:
5.1. Research Design:
With the use of case studies from certain countries that have adopted the inflationary target strategy of
monetary policy, the research will try to display the various impacts of adopting such a method also
comparing their different experiences descriptively. It will also with the use of mathematical
regressions investigate the validity of certain aggregates and monetary policy instruments on inflation
rate in Nigeria. This will include the use of secondary data acquired from statistics.

5.2. Research Sample:

The countries in question (though needing further adjustments) will be Nigeria, South-Africa, New
Zealand and UK. It will be focusing on the various Central Banks or Reserve authorities of the
countries. The data for analysis will be limited only to Nigerian statistics and one of the other above
countries on Interest rate, Inflation rates, Exchange rates, GDP growth rates e.t.c. This is also due to
the lack and shortage of available data for further research as comparison will be done.
5.3. Data Collection:
The data used will be secondary in nature and will be acquired from the Central Bank of Nigeria data
and statistics from the time range of 2005 – 2009.

5.4. Data Analysis:

In analyzing the data available, simple methods of econometrics will be adopted and a descriptive
interpretation will be adopted. Methods like; tables, histograms, Standard deviation, time series and
Regression.

Standard Deviation: {( x 2 / n) – (x/n) 2}.

Regression: { nxy - (x)(y) } /  { (nx2 - (x)2)(ny2 - (y)2 ) }.

77
 6. Time Scale:
Below is the estimated time frame in which this research should be carried out, there is quite an
adequate amount of time for the discovery and analysis of the data.

Week beginning Progress

4/05/2010  Hand in the dissertation proposal and ethics form

 Complete all Outstanding course work
 Prepare adequately for the examinations

10/05/2010  Literature review

 Visit my supervisor for advice on the next steps in the research
process.
 Study the different CB’s undertaking Inflation targeting.

17/05/2010  Ongoing collection of secondary data

 Perfect my skills in the use of multiple regressions of variables.

21/05/2010  Allocate my variables in to independent and explanatory variables.

 Receive any other sources of data.
 Start Data analysis

28/05/2010  Dissertation draft writing

 Hand the dissertation draft to my supervisor
04/06/2010  Receive first feedback for dissertation draft
 Make any necessary changes to the data analysis

11/06/2010  Receive more feedback for dissertation draft

 Final modification to the dissertation draft

18/06/2010  Start with writing the dissertation proper

 Finalize the dissertation
 Make any necessary corrections

77
15/09/2010  Final submission of the dissertation

7. Limitations:
The main limitation of this research is the unavailability of data to further stretch the research. Since
the research is about inflation targeting, Nigeria has just decided to carry on a monetary policy of
inflation targeting in 2009 and so accurate data for forecasting might not be readily available.

77
Bibliography:
Hu, Y (2003) Empirical Investigations of Inflation Targeting. Available from:
th
<www.iie.com/publications/wp/03-6.pdf:> [Accessed 14 March 2010].

Agu, C (2007) What Does the Central Bank of Nigeria Target? An Analysis of Monetary Policy
Reaction Function in Nigeria. Available from: <www.csae.ox.ac.uk/conferences/2008-
th
EDiA/papers/112-Agu.pdf> [Accessed 14 March 2010].

Woodford, M (2001) Imperfect Common Knowledge and The Effects of Monetary Policy. Available
from: < www.nber.org/papers/w8673: > [Accessed 14th March 2010].

Chukwu, C (2009) Measuring the Effects of Monetary Policy Innovations in Nigeria: A Structural
Vector Autoregressive Approach. African Journal of Accounting, Economics, Finance and Banking
Research Vol. 5. No. 5.

Back to Basics: The Move to Inflation Targeting:

Bomhoff, E.J (1992) Money Targeting and Interest- Rate Targeting in an Uncertain World.

Epstein, G and Yeldan, E Inflation Targeting, Employment Creation and Economic Development.

Bardsen, G, et al, (2003) Econometric Inflation Targeting.

Kara, A and Nelson, E (2002) The Exchange Rate and Inflation in the UK.

Shamim, F (2007) The ICT Environment, Financial Sector and Economic Growth: A Cross-Country
Analysis. Vol 34 No 4, Emerald Group Publishing Ltd.

Filho, S.H, et al, (2007) Economic Transparency and Effectiveness of Monetary Policy. Vol 34 No 6,
Emerald Group Publishing Ltd.

77
Appendix c: Subgroups Percentages

Nigerian Subgroups %
Subgroups Percentage Account ATM Users Users of Credit Other Effects of
(%) Owners Lending Services Employment
Facilities Status

Sex
Male 59.60% 40.40% 9.62% 21.15% 11.50%
Female 40.40% 25.00% 6% 15% 29%

Age Group
18-24 19.20% 36.50% 0.00% 9.60% 14%
25-30 38.50% 23.00% 1.90% 10% 19.23%
31-36 19.20% 9.60% 3.85% 3.85% 14.00%
37 and above 21.15% 13% 9.60% 13% 14.00%

Monthly Income
Below 18,000 7.69% 6% 0% 3.90% 5.77%
18,000-50,000 26.90% 17% 1.90% 5.77% 15%
50,000-100,000 17.30% 14% 3.90% 10% 9.60%
100,000 and above 15.40% 13.50% 5.77% 11.50% 9.60%

77
Subgroups Percentage Effects of Effects of Effects required
(%) Income Level Interest rate identification

Sex
Male 30.80% 46.15% 19.23%
Female 25% 25% 14%

Age Group
18-24 14.00% 14.00% 8%
25-30 19.23% 25.00% 12%
31-36 7.69% 12% 4%
37 and above 15.40% 19.23% 10%

Monthly Income
Below 18,000 3.90% 5.77% 1.90%
18,000-50,000 17.30% 17.30% 8%
50,000-100,000 9.60% 13.50% 5.77%
100,000 and above 9.60% 11.50% 9.60%

77
UK Subgroups %
Subgroups Percentage Account ATM Users Users of Credit Other Effects of
(%) Owners Lending Facilities Services Employment Status

Sex
Male 51.25% 46.25% 18.75% 23.75% 35.00%
Female 37.50% 32.50% 15% 10% 23%

Age Group
18-24 32.50% 26.25% 11.25% 8.75% 20%
25-30 32.50% 23.75% 6.25% 5% 16.25%
31-36 11.25% 12.50% 7.50% 7.50% 7.50%
37 and above 8.75% 5% 6.25% 5% 3.75%

Monthly Income
Below 800 pounds 18.75% 15% 3.755 6.25% 6.25%
800-1,000 pounds 12.50% 10% 2.50% 6.25% 10%
1,000-3,000 pounds 8.75% 10% 6.25% 5% 7.50%
3,000-5,000 pounds 3,75% 2.50% 3.75% 2.5 3.75%
5,000 and above 2.50% 1.25% 1.25% 1.255 1.25%

77
Subgroups Percentage (%) Effects of Effects of Effects required
Income Level Interest rate identification

Sex
Male 31.25% 40.00% 32.50%
Female 23% 24% 21%

Age Group
18-24 17.50% 21.25% 20%
25-30 155 18.75% 15%
31-36 7.50% 10% 5%
37 and above 3.75% 7.50% 5%

Monthly Income
Below 800 pounds 8.755 13.75% 8.75%
800-1,000 pounds 3.75% 105 5%
1,000-3,000 pounds 7.50% 3.755 6.25%
3,000-5,000 pounds 3.75% 3.75% 1.25%
5,000 and above 1.25% 1.25% 2.50%

77