FINTECH PENETRATION AND FINANCIAL DEEPENING IN NIGERIA: AN ARDL ANALYSIS OF THE DIGITAL CREDIT CHANNEL

Has the rapid spread of mobile and internet connectivity in Nigeria translated into deeper formal bank credit? To answer this, mobile cellular subscriptions and internet use, two World Development Indicators series that move closely in tandem, are condensed by principal component analysis into a Fintech Penetration Index that retains 98 per cent of their joint variance. An Autoregressive Distributed Lag bounds test is then applied to the index and bank credit to the private sector over 1996-2023 (the longest period for which all of the required series are continuous), with GDP growth, inflation and personal remittances as controls. Cointegration is confirmed (F = 8.47), and the error-correction coefficient of -0.75 implies that most of any deviation from the long-run relationship is closed within a year. Only remittances, and more tentatively GDP growth, carry a significant long-run coefficient; the fintech index is insignificant in both the long and the short run. An interaction model shows that the already weak fintech-credit link weakened further after the Central Bank of Nigeria's 2012 cashless policy and National Financial Inclusion Strategy. The results are read against Nigeria's mobile money framework, which did not allow mobile network operators to lead mobile money schemes, unlike the operator-led model behind Kenya's M-Pesa, and a significant Ramsey RESET statistic is reported as a specification concern for later work. Consequently, digital connectivity alone will not deepen formal bank credit in Nigeria. Rather, to convert connectivity gains into financial deepening, the focus should be on policies that connect digital users to deposit and lending relationships, while leveraging fintech transaction data for credit scoring.