A Comaparative Study(UK and Nigeraia)

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Leeds Metropolitan University

Faculty of Business & Law

MA International Business

A Comparative Analysis of Financial Inclusion:



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



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.



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.



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



2.9 Success Factors of Service Quality ................................................................................ 26

2.9.1 Core service or service product ............................................................................... 272.9.2 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................................................................................................................ 282.11 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 .................................................................... 312.15.1 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



3.5 Data Analysis ................................................................................................................. 42

3.5.1 Analytical Framework ............................................................................................ 423.6 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 .............................................................................................................................. 453.11 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



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..................................................................... 49Figure 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 ............................................................... 59Figure 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



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 ..... 64Table 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 QuestionnaireAppendix B: Research Proposal

Appendix C: Subgroup Percentages



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 countrieswere 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



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

d fi i l bili h f h d fi i l h f d



Figure 2: Components of Financial Inclusion

Source: Karmakar K.G. 2010

1.3.1 Financial Exclusion

h i f i l i b ld l b d i h d i i i l h l h d



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



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



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.



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 Fina nce/Community Banking

Provision

Oluyombo (2007) made note that microfinance institutions and banks are fast becoming a householdname 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



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.



1.5.8.4 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



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



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



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-co mplexity

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 thatfinancial 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



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



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



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

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

Differentiation Low Cost

Focus(Rural/Urban Poor)

Quality Service Non-bank

Institutions



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


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

Differentiation Low-Cost

Strate

Focus Strategy

(Rural/Urban Poor)Competitive Scope



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



2.9.1 Core service or service product

Product and service development are vital for growth of a f irm 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



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 shownthat 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 responsibilit y

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



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



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


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.

Differentiation(Quality Service)

Low CostStrategy

Focus Strategy

Competitive Advantage



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


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

Differentiation Low Cost Strategy

(Micro Finance

Policies)

Focus Strategy

Competitive Advantage



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.



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



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 economicindustries 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 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.



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 theuse 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.

20

25

30

35

40

45



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



Figure 9: Nigerian Deposit and Lending Rate

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

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

05

1015202530354045

Nigerian Deposit and Lending Rates:(2001-2008)

Deposit Rate

Lending Rate



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.



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 theapplication 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.



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 bystating 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.



3.4 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 todetermine 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



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



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



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



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

answer the research question.



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



Q.1: Do you own a bank account?

Table 2 & 3: Data on Bank Account Owners

Bank Account Owners Nigeria:f %

Yes 52 100%

No 0 0

Total

Sample/Respondents 52 100%

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/ Community 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

h i t l t f t f ti ( t d t ) t h th t f fi i l i tit ti th t

Bank Account Owners

UK:

f %

Yes 72 90%

No 1 1.25%

Total Respondents 73 91.25%

Total Sample 80 100%



Figure 10: UK Use/Access to Financial Institutions

Figure 11: Nigerian Use/Access to Financial Institutions

Micro

Finance Bank36%

Commercial

Bank

58%

CommunityBank

6%Micro Finance Bank

Commercial Bank

Community Bank

Micro

Finance

Bank; 17%

Commercial

Community

Bank; 0%

Micro Finance Bank

Commercial Bank

Community Bank



Q. 5: Rate the distance of your nearest financial bank from your place of residence.

Table 5: Data on Bank Branch Distance

Bank Branch Distance

Nigeria:

f %

UK:

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

Average Distance

Very near

UK

Nigeria



Q. 7: Does your financial institution provide automated services?

Table 6: Data on Automated Teller Providers

Nigeria:

f

UK:

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:

f

UK:

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. 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%

Th b ill t ti d t t i f th l th t f l f th t t



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

Reason for ATM Non-Users

Nigeria:

f %

UK:

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

[R d l d h f h k b h dd d h



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

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-

Users: f

Nigeria UK

% 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%

Users

34%

Non-

users66%

UK

Users

Users

36%

Non-

users64%

Nigeria

Users

Non-users



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 andsmall 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



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%



Table 15: Data on Level of Familiarity of Internet 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

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

Nigeria

UK



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

Level of familiarity of Banking ServicesMobile 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

20 00%

30.00%

40.00%

50.00%

60.00%

Nigeria



Table 17: Data on Level of Familiarity of Debit Card 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

40.00%

50.00%

60.00%

70.00%

Nigeria



Table 18: Data on Level of Familiarity of Credit Card 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

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%60.00%

l l

Nigeria

UK



Table 139: Data on Level of Familiarity of Bank Mortgage 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

20.00%

30.00%

40.00%

50.00%

60.00%

Nigeria

UK



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

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

50.00%

60.00%

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%



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

40.00%

50.00%

60.00%

Nigeria



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%



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 Financial 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

50.00%

60.00%



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

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

Nigeria

UK



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 (%)

20

30

40

M2/GDP Ratio %



Figure 27: Currency outside Banks to Money Supply Ratio Percentage (%)

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

%)

0 510

1520

25

2003

2006

20.820.320

16.212.7

9.7

COB/M2 Ratio %



Figure 29: Loans and Deposits to bank customers

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

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

2001

2002

2003

2004

2005

2006

2007

Loans and Advances to

Customers

Demand Deposits



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.



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 servicewhere 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

i i b idi i d h i h i f i di d i F h



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

I ’ l l f fi i l i l i / l i iti l l t d ith hi /h l t



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

A i tit ti l k i t th ti f fi i l d i h i i l ti t GDP



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

targeted sample; the research employed data collection from the use of mail questionnaires and the



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.

bl h



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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

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 residence1 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.....

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

aware

Fairly

awareAware

Very

aware

Loans

Internet Banking

Mobile Banking

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

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

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

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

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 rank s 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 itdistorts 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

3. Objectives and Aims:

The research will be in place to meet the objective of looking at ways that the CBN can solve the



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

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.



g p p q y y

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

() 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



p y ( ) p g , ( ) y

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

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.

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.

Bibliography:

Hu, Y (2003) Empirical Investigations of Inflation Targeting. Available from:



<www.iie.com/publications/wp/03-6.pdf:> [Accessed 14th

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-

EDiA/papers/112-Agu.pdf > [Accessed 14th

March 2010].

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

thMarch 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.

Appendix c: Subgroups Percentages

Nigerian Subgroups %

Subgroups Percentage

(%)

Account

Owners

ATM Users Users of Credit

Lending

F iliti

Other

Services

Effects of

Employment

St t

http://www.csae.ox.ac.uk/conferences/2008-EDiA/papers/112-Agu.pdf






77

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%


(%)

Effects of

Income Level

Effects of

Interest rate

Effects required

identification

Sex

Male 30.80% 46.15% 19.23%

Female 25% 25% 14%



77

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%

UK Subgroups %


(%)

Account

Owners

ATM Users Users of Credit

Lending Facilities

Other

Services

Effects of

Employment Status

Sex

Male 51.25% 46.25% 18.75% 23.75% 35.00%



77

Female 37.50% 32.50% 15% 10% 23%

Age Group18-24 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%

Subgroups Percentage (%) Effects of

Income Level

Effects of

Interest rate

Effects required

identification

Sex

l



77

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%