Abstract

Financial inclusion is currently hot topic in policy spheres because of its potency in encouraging economic growth. And because it improves the sensitivity of aggregate demand to interest rate it has been argued to be useful for the success of monetary policy. However, little attention has been devoted to computing the exact effect of financial inclusion on monetary policy. This paper presents a simple model showing the impact of financial inclusion on monetary policy in Nigeria between 1980 and 2012. The result of the study supports the notion that growing financial inclusion would improve the effectiveness of monetary policy. However, the coefficient of the number of bank branches has the wrong sign and this is explained by the fact that, in opening branches, banks mainly pursue profits but not financial inclusion which is a policy objective, so that there are clusters of branches which are under-utilized while numerous locations which are considered not favourable for balance sheets are under-branched.