Long-term asymmetric impact of financial fraud on financial inclusion in Nigeria: insight from non-linear ARDL approach

Purpose This research aims to evaluate the long-term asymmetric influence of financial fraud (FF), measured by total amount lost to fraud and total amount of fraud, on financial inclusion (FI) proxied by the FI index (developed by two-stage Principal Component Analysis) in Nigeria, from 1989 to 2023. Design/methodology/approach The research used the non-linear autoregressive distributed lag (NARDL) technique to assess the asymmetric influence of FF on FI. To ascertain the consistency and robustness of the NARDL results and correct any potential endogeneity, alternative estimation methods including the linear autoregressive distributed lag (ARDL), fully modified ordinary least squares (FMOLS), dynamic ordinary least squares (DOLS) and canonical co-integrating regression (CCR) were employed. Findings The bounds-testing to co-integration results portray evidences of long-term relation between FF and FI (alongside income growth, inflation and interest rates, employment rate and money supply). The asymmetric test’s results reveal evidences of long-term asymmetry between FF and FI. The results portray that rising FF reduces FI, while declining FF enhances FI during long-term. In addition, income growth, employment rate, money supply, inflation and interest rates, are long-term drivers of FI. Using alternative estimation methods like linear ARDL, DOLS, CCR and FMOLS, this study finds evidence that growing FF dampens FI in Nigeria. Research limitations/implications The study concentrates on Nigeria, and measures FF as total amount lost to fraud and total amount of fraud, which may not comprehensively capture all types of fraud (e.g. identity theft, cyber fraud and unauthorized transactions). Practical implications Financial institutions and policymakers should adopt advanced fraud detection technologies, enhance financial literacy programmes, and strengthen regulatory frameworks to protect consumers to restore trust in the financial system. Social implications Fraud-related financial losses erode public trust in formal financial institutions, discouraging individuals, especially those in vulnerable and low-income groups, from (re)engaging with the financial system. Originality/value To the best of the authors’ knowledge, this (research) is the first attempt to provide insights into the role of FF in FI in Nigeria.