The Role of Artificial Intelligence in Enhancing Financial Inclusion in Microfinance Lending in Nigeria
DOI:
https://doi.org/10.61143/umyu-jafr.8(1)2025.027Keywords:
Artificial Intelligence, Microfinance, Financial Inclusion, Nigeria, Credit Scoring, Digital LendingAbstract
This study investigates the transformative potential of artificial intelligence (AI) in enhancing financial inclusion through microfinance lending in Nigeria, where 40% of adults remain financially excluded. Employing a sequential explanatory mixed-methods design, the research analyzed responses from 720 microfinance stakeholders out of 840 reached (85.72% response rate) and conducted in-depth interviews with 15 key informants (100% response rate). Findings reveal a tiered adoption pattern, with fraud detection systems (mean=3.12) showing higher implementation than customer-facing AI applications (mean=1.57), reflecting infrastructural and cultural barriers. Structural equation modeling demonstrated AI's significant positive impact on loan approval rates (β=0.38, p<0.001) and default reduction (β=-0.21, p<0.001), though processing time improvements were moderate (β=0.29). Regional analysis uncovered stark disparities, with South West institutions (mean=3.78) outperforming North East MFBs (mean=2.15) due to uneven digital infrastructure. The study makes three key contributions: (1) extending the Technology Acceptance Model to incorporate infrastructural mediators, (2) documenting Nigeria's unique "security-first" AI adoption pathway in microfinance, and (3) providing empirical evidence of AI's inclusion benefits in an emerging market context. Practical recommendations emphasize phased implementation, hybrid human-AI decision systems, and zonal regulatory sandboxes to address implementation challenges while maximizing financial inclusion outcomes.
References
Adelaja, A. O., Umeorah, S. C., Abikoye, B. E., & Nezianya, M. C. (2024). Advancing financial inclusion through fintech: Solutions for unbanked and underbanked populations. World Journal of Advanced Research and Reviews, 23(2).
Akinbowale, M. A., Klingelhöfer, H. E., & Zerihun, M. F. (2020). Analysis of cyber-crime effects on the banking sector using the balanced scorecard: A survey of literature. Journal of Financial Crime, 27(1), 21–40. Organization,
Arner, D. W., Barberis, J., & Buckley, R. P. (2020). Fintech and regtech in a nutshell: The future of finance. Oxford University Press.
Banerjee, S. B., Chio, V. C. M., & Mir, R. (2020). Organization, markets and imperial formations: Towards an anthropology. Edward Elgar Publishing.
Barboni, G., Cassar, A., & Demont, T. (2021). Digital credit in Kenya: Evidence from a randomized evaluation. World Bank. https://openknowledge.worldbank.org/handle/10986/35536
Bazarbash, M. (2019). Fintech in financial inclusion: Machine learning applications in credit scoring (IMF Working Paper No. 19/109). International Monetary Fund. https://www.imf.org/en/Publications/WP/Issues/2019/10/11/Fintech-in-Financial-Inclusion-Machine-Learning-Applications-in-Credit-Scoring-48682
Berg, T., Burg, V., Gombović, A., & Puri, M. (2020). On the rise of fintechs: Credit scoring using digital footprints. Review of Financial Studies, 33(7), 2845–2897.
Braun, V., & Clarke, V. (2006). Using thematic analysis in psychology. Qualitative Research in Psychology, 3(2), 77–101.
Buchak, G., Matvos, G., Piskorski, T., & Seru, A. (2022). Fintech, regulatory arbitrage, and the rise of shadow banks. Journal of Financial Economics, 130(3), 453–483.
Central Bank of Nigeria. (2021). Guidelines on operations of electronic payment channels in Nigeria. https://www.cbn.gov.ng/Out/2021/FPRD/GUIDELINES%20ON%20OPERATIONS%20OF%20ELECTRONIC%20PAYMENT%20CHANNELS%20IN%20NIGERIA.pdf
Central Bank of Nigeria. (2022). Directory of licensed microfinance banks in Nigeria. https://www.cbn.gov.ng/Out/2022/FPRD/MFB%20Directory%20June%202022.pdf
Central Bank of Nigeria. (2022). Economic report for the first half of 2022. https://www.cbn.gov.ng/Out/2022/RSD/Economic%20Report%20First%20Half%202022.pdf
Chen, M. A., Wu, Q., & Yang, B. (2021). How valuable is fintech innovation? Review of Financial Studies, 34(5), 2062–2108.
Creswell, J. W., & Creswell, J. D. (2018). Research design: Qualitative, quantitative, and mixed methods approaches (5th ed.). Sage.
Davis, F. D. (1989). Perceived usefulness, perceived ease of use, and user acceptance of information technology. MIS Quarterly, 13(3), 319–340.
Demirgüç-Kunt, A., Klapper, L., Singer, D., & Ansar, S. (2018). The Global Findex Database 2017: Measuring financial inclusion and the fintech revolution. World Bank. https://openknowledge.worldbank.org/handle/10986/29510
DiMaggio, P. J., & Powell, W. W. (1983). The iron cage revisited: Institutional isomorphism and collective rationality in organizational fields. American Sociological Review, 48(2), 147–160.
Efobi, U., Tanankem, B., & Asongu, S. (2022). Technological advancement and financial inclusion in Sub-Saharan Africa. African Development Review, 34(1), 85–99.
Etikan, I., Musa, S. A., & Alkassim, R. S. (2016). Comparison of convenience sampling and purposive sampling. American Journal of Theoretical and Applied Statistics, 5(1), 1–4.
Field, A. (2018). Discovering statistics using IBM SPSS Statistics (5th ed.). Sage.
FSD Africa. (2021). The future of digital credit in Africa. https://www.fsdafrica.org/publication/the-future-of-digital-credit-in-africa/
Gabor, D., & Brooks, S. (2017). The digital revolution in financial inclusion: International development in the fintech era. New Political Economy, 22(4), 423–436.
Gelb, A., & Metz, A. (2018). Identification revolution: Can digital ID be harnessed for development? Center for Global Development. https://www.cgdev.org/publication/identification-revolution-can-digital-id-be-harnessed-development
Global Partnership for Financial Inclusion. (2020). Digital financial inclusion: Emerging policy approaches. https://www.gpfi.org/publications/digital-financial-inclusion-emerging-policy-approaches
Kline, R. B. (2016). Principles and practice of structural equation modeling (4th ed.). Guilford Press.
Manyika, J., Lund, S., Singer, M., White, O., & Berry, C. (2019). Digital finance for all: Powering inclusive growth in emerging economies. McKinsey Global Institute. https://www.mckinsey.com/industries/financial-services/our-insights/digital-finance-for-all
Mehrabi, N., Morstatter, F., Saxena, N., Lerman, K., & Galstyan, A. (2021). A survey on bias and fairness in machine learning. ACM Computing Surveys, 54(6), 1-35.
National Information Technology Development Agency. (2019). Nigeria data protection regulation. https://nitda.gov.ng/wp-content/uploads/2019/01/NigeriaDataProtectionRegulation.pdf
Nigeria Deposit Insurance Corporation. (2022). Annual report and statement of accounts. https://ndic.gov.ng/wp-content/uploads/2023/03/NDIC-Annual-Report-2022.pdf
Nwankwo, W. (2023). Fintech and financial inclusion in Nigeria: The FairMoney case study. Journal of African Business, 24(1), 123-140.
Ovia, J. (2021). Digital transformation in Nigerian banking: Challenges and opportunities. Central Bank of Nigeria Economic and Financial Review, 59(4), 1-18. https://www.cbn.gov.ng/out/2021/rsd/economic%20and%20financial%20review%20vol%2059%20no%204%20december%202021.pdf
Rogers, E. M. (2003). Diffusion of innovations (5th ed.). Free Press.
Sahay, R., von Allmen, U. E., Lahreche, A., & Khera, P. (2020). The promise of fintech: Financial inclusion in the post COVID-19 era (IMF Working Paper No. 20/49). International Monetary Fund. https://www.imf.org/en/Publications/WP/Issues/2020/09/11/The-Promise-of-FinTech-Financial-Inclusion-in-the-Post-COVID-19-Era-49682
Saunders, M., Lewis, P., & Thornhill, A. (2019). Research methods for business students. Pearson Education.
Tashakkori, A., & Teddlie, C. (Eds.). (2010). SAGE handbook of mixed methods in social and behavioral research (2nd ed.). SAGE Publications.
World Bank. (2020). World development report 2020: Trading for development in the age of global value chains. World Bank.
Downloads
Published
Issue
Section
License
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
UMYU-JAFR recognizes the importance of protecting authors’ intellectual property while promoting the free exchange of knowledge. The journal adopts a copyright-retention model that empowers authors to maintain ownership of their work while granting the journal rights necessary for publication and dissemination.
1. Copyright Ownership
Authors publishing with UMYU-JAFR retain full copyright and publishing rights to their work. By submitting a manuscript, authors agree to grant the journal a non-exclusive license to publish, reproduce, distribute, and archive the article in all forms and media for the purpose of scholarly communication.
2. Licensing Terms
All articles are published under the Creative Commons Attribution–NonCommercial (CC BY-NC) license. This license permits others to share and adapt the material for non-commercial purposes only, provided that proper credit is given to the original author(s) and UMYU-JAFR as the source. Commercial reuse requires written permission from both the author and the editorial office.
3. Author Rights
Authors are free to deposit all versions of their manuscript in institutional or public repositories without embargo, use their published article for teaching and conference presentations, and include their work in future theses or compilations, provided proper citation to the journal is made.
4. Publisher’s Rights
Upon publication, UMYU-JAFR retains the right to host, index, and disseminate the article through its website and partner databases, and to archive the content in long-term preservation systems.
