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Sectoral Credit Allocation of Deposit Money Banks and Poverty Reduction in Nigeria

Monogbe Tunde, G.

,

Achugbu Austin

,

Uzowuru Lawrence, N.

,

Edori, Daniel, S.

Monogbe Tunde, G. 1

Achugbu Austin 2
Uzowuru Lawrence, N. 3
Edori, Daniel, S. 4

  1. Department of Finance and Banking, University of Port Harcourt, Rivers State, Nigeria 1

  2. Department of Banking and Finance, Chukwuemeka Odumegwu Ojukwu University, Anambra State, Nigeria 2

  3. Department of Banking and Finance, Imo State University, Owerri, Nigeria 3

  4. Department of Business, C. S. S. Mgbuoshimini, Port Harcourt, River state, Nigeria 4

Pages: 49-60

DOI: 10.18488/journal.62.2019.61.49.60

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Article History:

Received: 25 October, 2018
Revised: 07 December, 2018
Accepted: 10 January, 2019
Published: 28 February, 2019


Abstract:

The nature of relationship between deposit money banks loan to certain sector of the economy and its possible effect of reducing poverty rate in Nigeria is controversial and significant. As such, this study set out to examine the extent to which deposit money bank loan and advances to SMEs, agricultural, and manufacturing sectors in Nigeria has helped in reducing poverty rate. To achieve the objective of the study, unit root test, auto regressive distributive lag estimate and causality test were employed. Result shows that deposit money bank loan to SMEs and agricultural sector seem to be inversely related to poverty rate in Nigeria while sectoral allocation to the manufacturing sector is not capable of reducing poverty rate in Nigeria. This inherent relationship between loans to manufacturing sectors and poverty reduction in Nigeria could be attributed to some structural factors cited in the body of the paper. In the light of these findings, this study concluded that (i) Poverty rate in Nigeria is significantly sensitive to deposit money bank credit to agricultural sector; (ii) Within the context of the study, deposit money bank allocation to SMEs has helped in reducing poverty rate in Nigeria to the tune of 1.821 unit. On this premises, it is recommended that bank ordinances and financial institution act should be review to ensure that more credit is allocated to agricultural and SMEs sector as this will help in reducing the ever teaming trend of poverty in Nigeria through the window of job creation.
Contribution/ Originality
Having subjected our data set to rigorous analysis, it is established within the context of this study that sectoral allocation of deposit money banks loan and advances to small and medium scale enterprises has significantly contributed to economic growth such that poverty trend is being reduce to the tune of 1.82135 unit all things being equal. Further, deposit money bank allocation to the manufacturing sector does not seem to be significant in boosting economic output, as such poverty trends remain unchanged.

Keywords:

Finance, Financial crisis, Financial economics, Financial intermediation, Financial markets.

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Funding:

This study received no specific financial support.

Competing Interests:

The authors declare that they have no competing interests.

Acknowledgement:

All authors contributed equally to the conception and design of the study.

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