The Unbanked Four-Fifths: Informality and Barriers to Financial Services in Nigeria

Michael King

The Institute for International Integration Studies Discussion Paper Series from IIIS

Abstract: Four-fifths of the adult population do not have access to formal financial services in Nigeria. This paper examines the characteristics of 'unbanked' households in Nigeria, investigates the extent and determinants of supply and demand side barriers, and explores the specific role played by informality in financial exclusion. There is evidence to suggest that in Nigeria the unbanked four-fifths have lower incomes, lower education, are less likely to have a mobile phone, and have lower levels of financial sector knowledge and formal documents in their name than the remainder of the population. A non-mutually exclusive framework for analysing barriers to formal banking is developed and insights on the characteristics of sub-groups of the unbanked population who face particular barriers are provided. While poverty and distance to bank branch are the most important barriers cited, informality also plays a significant role and tackling informality directly represents an opportunity for financial inclusion policy. Using instrumental variables, the precise role played by informality in financial exclusion is estimated and for individuals with four and five documents, it is found that an additional document increases the probability of being banked by 17 percent and 15 percent respectively. Length: 45 pages

Keywords: Access to finance; barriers to banking services; informality; Nigeria; financial inclusion (search for similar items in EconPapers)
JEL-codes: G21 O13 (search for similar items in EconPapers)
Date: 2012-10
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:iis:dispap:iiisdp411

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