Abstract

Abstract: This study tries to establish the microfinance and financial inclusion nexus in Nigeria from 1981 to 2017. The Augmented Dickey-Fuller (ADF) test, co-integration test and Error Correction Model (ECM), as well as diagnostics and stability test were employed in the analysis. The research findings revealed that microfinance has positive significant effect on financial inclusion in Nigeria in the short–run and long–run. This finding is in line CBN objectives for the establishment of microfinance banks. The effect of lending interest rate has a positive but has no significant with financial inclusion in the model one while it is statistically significant with poverty in Nigeria in the mode two. The positive lending interest rate has a statistically significant effect on the level of financial inclusion and national poverty index used as a proxy for poverty rate in the long run in the models. Also, the research also found that microfinance has really a tool to fight against poverty in Nigeria in the short-run, while it’s not really a tool to fight against poverty in the long-run in Nigeria. It was therefore recommended that Government agency and regulatory authority policies and practices need to play a key role in making micro-credit available to the economically-active poor people who are not being served by the formal financial sector. Also, apart from monitoring lending interest rates, the government needs to establish frameworks to prevent undercapitalization, fraudulent practices, and unwarranted interference from bank board members in Nigeria.