Financial Inclusion, Human Capital and Welfare Dynamics in Nigeria: Evidence From Banking and Non-Banking Financial Channels

This study examines the effects of financial inclusion on welfare outcomes (poverty and income inequality) in Nigeria, disaggregating financial inclusion into banking-channel indicators (automated teller machine penetration, ACFI; account ownership and usage, USFI) and a non-banking-channel indicator (NBFI), while controlling for economic growth and inflation. Annual series for 2004–2023 were converted to quarterly frequency using cubic-spline interpolation to permit dynamic estimation with an adequate number of observations; Unit root tests indicate that the variables are predominantly integrated of mixed orders, and Fully Modified Ordinary Least Squares (FMOLS) is therefore used to estimate the long-run cointegrating relationships, with heteroskedasticity, residual normality, and CUSUM/CUSUMSQ stability diagnostics reported for both estimated models. The results show a mixed and channel-specific pattern: account ownership and usage (USFI) are associated with a statistically significant reduction in income inequality, while ATM penetration (ACFI) and non-banking financial inclusion (NBFI) show no statistically significant welfare effect in either model once long-run dynamics are accounted for. Economic growth is positively and significantly associated with inequality, consistent with a growth-inequality trade-off in the Nigerian context. The findings do not support a blanket conclusion that financial inclusion has failed in Nigeria; rather, they suggest that usage-based banking inclusion carries distinct welfare effects from infrastructure-based access (ATMs) and non-banking channels. The paper recommends that financial inclusion policy in Nigeria shift emphasis from access expansion toward usage deepening, particularly for low-income and human-capital-constrained households.