Can financial inclusion reduce income inequality? Evidence from Nigeria

Purpose: This study examines the effect of financial inclusion on income inequality in Nigeria. Specifically, it evaluates whether improvements in financial access, alongside selected macroeconomic variables, significantly influence the level of income inequality in the country. Methodology: The study adopts an ex post facto research design using annual time-series data for Nigeria. The population of the study comprises all annual macroeconomic observations relevant to financial inclusion and income inequality in Nigeria within the study period. Based on data availability and consistency across sources, the study uses annual observations covering 1985–2020. Data were obtained from the World Development Indicators, Central Bank of Nigeria Statistical Bulletin, Federal Ministry of Education reports, and the Standardized World Income Inequality Database. The study employs Ordinary Least Squares and Newey-West regression techniques for estimation. Results and conclusion: The findings show that financial inclusion exerts a reducing effect on income inequality in Nigeria. Economic growth also contributes to inequality reduction, while inflation and real interest rate tend to worsen inequality. Government spending shows a negative but weak effect on inequality, while primary school enrolment does not exert a statistically significant short-run effect. The study concludes that financial inclusion is an important instrument for promoting a more equitable income distribution in Nigeria. Implication of findings: The findings imply that policies aimed at expanding access to financial services, strengthening macroeconomic stability, and improving the efficiency of public spending are essential for reducing income inequality and promoting inclusive growth in Nigeria.