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Pyrex Journal of Business and Finance Management Research

July 2016 Vol. 2(7), pp. 50-57

ISSN: 2985-8860

Copyright © 2016 Pyrex Journals




Full Length Research Paper


Paradox of Using Interest Rate as Financial Incentive for the adoption of Financial Innovation and National Productivity in Nigeria


Idowu Akinyele Akinwumi*, Patrick Ngumi and Willy Muturi

Department of Economics Accounting and Finance, College of Human Resources and Development (Cohred), Jomo Kenyatta University of Agriculture and Technology (JKUAT), Juja Campus, Kenya.

Corresponding Author E-mail: idakinyele@gmail.com

Accepted 6th July, 2016



Abstract


In Nigeria, several policies that increase financial deepening and financial innovation have been nurtured with the aim of improving economic growth. This study sought to investigate the effects financial incentives on the adoption of financial innovation in Deposit money banks and economic growth in Nigeria. The study achieves this objective using data from 2005 to 2010 from Central Bank of Nigeria and National Bureau of Statistics Nigeria. Financial innovation and deepening, the dependent variable were captured by two indicators: Customer Base and Gross Domestic Product (GDP). The dependent variable was measured by real Interest rate. The variables were subjected to Correlation Analysis. The study found that banking sector in Nigeria has an important role in the process of economic growth. Specifically, the empirical results using Pearson movement correlation reveal that interest rate have positive and statistically significant effects on Deposit money banks’ customer base (0.316 ) but negative correlation with GDP (-0.054). The result revealed that credit to the private sector is a function of deposit in the banking sector vaults which is a function of acceptability and adoption of various banking innovative products and services by customers. This among other things is also associated with the interest payment rate which has great effect on productivity and national economy. The study therefore recommends reinforcing the existing policies that will encourage the public to save more money with commercial banks and at the same time improve national productivity. Increasing the interest rate paid to depositors on their deposits for example, will incite people to save more. However, this measure may raise cost of capital and credit thereby bringing GDP down, the study therefore recommends other palliative measures and policies that will enhance productivity and make borrowing conducive. This will encourage more people to participate in economic activities, to save more, borrow more and invest more.

Keywords: Financial Deepening, Economic growth, Cost of Capital, Financial Innovation.

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