Financial Institutions Credit and the Nigerian Economy (2000 - 2022)

Abstract

The role of financial institutions in the economy of any nation cannot be overemphasized, as they serve as intermediaries between savers and borrowers, thereby facilitating capital formation and economic growth. Despite the pivotal role these institutions play, the Nigerian economy continues to grapple with challenges such as low economic growth, high unemployment rates, and limited access to finance for small and medium-sized enterprises (SMEs). This study examined the effect of financial institutions’ credit on the Nigerian economy, analyzing how credit allocation influences economic growth, investment, and overall development. The general objective was to determine the effect of financial institutions’ credit on the Nigerian economy, with specific focus on finance houses, commercial bank, primary mortgage bank, and microfinance bank credit in relation to gross domestic product (GDP), the human development index (HDI), gross fixed capital formation (GFCF), and the poverty rate. The study empolyed secondary data sourced from the United Nations Development Programme (UNDP), the National Bureau of Statistics (NBS), and the Central Bank of Nigeria (CBN) Statistical Bulletin for the period 2000–2022. The study engaged the Error Correction Model (ECM) for estimation. The results indicate that financial institutions’ credit has a positive but no significant effect on the Nigerian economy. Based on these findings, the study recommended among others, that finance houses expand their reach to underserved areas, offer larger and more affordable long-term loans, and prioritize financing productive investments to boost income and employment. Commercial banks should enhance credit accessibility for low-income individuals and small businesses by lowering interest rates and providing financial literacy programs.