Revisiting the measurement of financial inclusion of rural smallholder farmers in Nigeria

Purpose: This study aims to develop and apply a multidimensional measure of financial inclusion (FI) to address measurement issues and determine the level of FI of rural smallholder farmers and the contribution of domain indicators to the level of FI in Nigeria. Design/methodology/approach: The paper adapts the Alkire–Foster method to develop a multidimensional FI index (MFII). A stratified two-stage sampling procedure is used to select 2,300 rural respondents from the 2016 Consultative Group to Assist the Poor (CGAP) Smallholder Household Survey. Findings: Results indicate that 78% of rural smallholder farmers in Nigeria are financially excluded. In addition, owning a formal account is significantly different (p< 0.00) from being financially adequate. The financial capability domain contributes the least (29.66%) to the multidimensional FI (MFI) of rural smallholder farmers relative to financial participation and financial well-being. Financial literacy, consumer protection, overcoming barriers such as high transaction costs and financial planning indicators contribute the least to FI relative to formal access. Practical implications: Results of the study lead to policy recommendations for increasing the FI of rural smallholder farmers in Nigeria, which may be applicable to other countries. Social implications: Achieving sustainable FI requires that interventions increase the FI of rural smallholder farmers by strengthening financial capability, participation and well-being and not only focus on formal account owners. Originality/value: The study provides a new methodological and empirical contribution to the FI literature on rural smallholder farmers.