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The IUP Journal of Applied Finance
Deposit Money Banks’ Efficiency and Financial Inclusion in Nigeria: A DEA Approach
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This study investigates the effect of deposit money banks’ efficiency on financial inclusion in Nigeria for the period 2006 to 2013. A non-parametric output-oriented variable return-to-scale Data Envelopment Analysis (DEA) approach is employed to ascertain the technical efficiency of these banks, from which the efforts at ensuring financial inclusion are inferred. The study found that deposit money banks in Nigeria are technically efficient, but individually inefficient, as an industry as well as a sector of the economy in ensuring financial intermediation. This result of technical inefficiency is also complemented by the findings of profit inefficiency for the period under investigation through the use of Financial Ratio Analysis (FRA) approach. On the whole, the results show that both the DEA and the FRA approaches are found complementary rather than competing measures. The study shows that even though the number of depositors and the number of bank branches have reasonably improved, the financial intermediation drives of the deposit money banks are still weak. Therefore, the study recommends that the central bank should regulate the deposit money banks in employing a stakeholder’s perspective to financial inclusion and not a selective one which is currently being undertaken by the banks. Also, socioeconomic infrastructure should be developed by the government to enhance banking spread far and wide, while proper orientation and incentive, if need be, should be given to encourage the savings habit of the populace.

 
 
 

The major bedrock for inclusive growth is financial inclusion (Ranganath and Rao, 2013), which on its own depends on efficiency in the operations of the financial sector of the economy. Financial exclusiveness is evident where much of the world’s low-income households and small firms are not served. However, financial inclusiveness becomes imperative since excluding some segments of the society has grave implications for domestic and global economic advancement. According to Anan (2006), inclusive financial sector is a prerequisite for halving the proportion of people living in extreme poverty in the world by 2015 as pronounced in the United Nations Millennium Declaration as part of its Millennium Development Goals (MDGs) and also embedded in the post-MDGs. This is instructive as it has been estimated that 2.5 billion people—over half of the world’s adult population—do not have access to formal financial services (Bucker, 2011). Therefore, creation and expansion of financial services should be targeted at the poor and low-income population in order to enhance financial access. With this inclusiveness, those excluded segments can then be captured (Anan, 2006).

Efficiency reflects the ability of a firm to obtain maximum output from a given set of inputs (Rogers, 1998; and Coelli et al., 2005). Efficiency is the highest level of productivity (Jayamaha and Mula, 2011). Efficiency can either be of technical or allocative form and the combination of the two gives the overall efficiency. Generally and technically, efficiency occurs if a firm obtains maximum output from a set of inputs while allocative efficiency occurs when a firm chooses the optimal combination of inputs, given the level of prices and the production technology (Coelli et al., 1998; and Rogers, 1998).

 
 
 

Applied Finance Journal, Data Envelopment Analysis (DEA)), Financial Ratio Analysis (FRA) ,Deposit Money Banks’ Efficiency, Financial Inclusion in Nigeria.