Examining the Nexus Between Financial Inclusion and Income Inequality in Nigeria: Evidence from State-Level Data

Financial inclusion is theorised to reduce income inequality by expanding credit and savings access to lower-income groups, but empirical evidence of this relationship at the sub-national level in Nigeria remains scarce. This study examines the nexus between financial inclusion and income inequality in Nigeria using state-level panel data for 36 states and the Federal Capital Territory for the period 2013 to 2022. Financial inclusion was measured by three dimensions: the penetration dimension (number of deposit accounts per 1,000 adults), the availability dimension (number of bank branches and ATMs per 100,000 adults), and the usage dimension (mobile banking active users as a percentage of adults). Income inequality was measured by the state-level Gini coefficient estimated from National Bureau of Statistics household consumption survey data. The fixed effects panel regression model with Driscoll-Kraay standard errors was employed to control for cross-sectional dependence. Results showed that the penetration and usage dimensions of financial inclusion significantly reduced income inequality at the 5% level, while the availability dimension had a positive effect on Gini coefficients at the 10% level, suggesting that branch expansion in isolation benefits wealthier urban populations disproportionately. The financial inclusion-inequality reducing effect was stronger in northern geopolitical zones where baseline inclusion was lowest. The study fills a state-level evidence gap and recommends targeted digital inclusion strategies for the North East and North West zones to maximise equality gains from financial sector expansion.

Keywords: financial inclusion, income inequality, Gini coefficient, state-level panel data, Nigeria