CHAPTER TWO

LITERATURE REVIEW
2.1 Theoretical Framework
The theories that guides this study are Financial Intermediation Theory,
Institutional Theory and Theory of Financial Inclusion.

2.1.1 Financial Intermediation Theory

Financial intermediation theory explains why financial intermediation (like
banks,mutual funds, and insurance companies) exist and how they facilitate the flow
of funds between savers and borrowers .Financial intermediaries act as middlemen,
improving efficiency, reducing risk, and solving market [Link]
intermediaries arose due to market imperfections including information
asymmetry,transaction costs , liquidity risk and default risk. Intermediaries help
overcome these problems through asset transformation, risk management and
delegated monitoring.
The Financial intermediation theory was developed by Franklin Allen and
Anthony M. [Link] presented a comprehensive overview of the theory in a
1998 paper published in the Journal of Banking and [Link] work also
contributed to the concept of financial intermediation and its role in the financial
system , which had been discussed by economists like John Gurley and Edward
Shaw.
John Gurley and Edward Shaw Financial intermediation theory presented
in their 1960 book”Money in a theory of finance .The theory of money and finance
explores the role of money and financial system in the economy , covering concepts
like monetary policy, financial intermediation , interest rate , inflation and investment
[Link] provides a framework for understanding the interactions between money ,
financial markets ,and the broader economy , informing monetary policy making and
investment decisions.
John Gurley and Edward Shaw financial intermediation theory emphasizes
the critical role of intermediaries in the financial system .They argue that financial
institutions facilitate economic growth by bridging the gap between savers and
borrowers , transforming iliquid asset into liquid asset liabilities , and reducing
transaction costs. Their theory highlights the distinction between direct (where savers
lend directly to borrowers, as in bond markets )and indirect finance((where
intermediaries like banks collect deposits and lend them out) , stressing that
intermediaries improve efficiency by polling risks, providing maturity
transformation , and enhancing information flow.
John Gurley and Edward Shaw financial intermediation theory challenges the
traditional view that money is the sole driver of economic activity, arguing instead
that non- monetary financial intermediaries like banks, insurance companies , and
investment companies plays a crucial role.
A key contribution is their emphasis on liability creation - financial intermediaries
don’t just transfer funds but also create new financial claims (e.g…,bank deposits)
that are more attractive to savers that direct securities . This process enhances
liquidity , reduces risk through diversification,and improves capital allocation. They
also highlight asset transformation where intermediaries convert risky, long- term
assets ( like loans) into safer, short term liabilities ( like deposits).
John Gurley and Edward shaw financial intermediation theory provides a
foundation framework for understanding how banks and other financial institutions
influence responsible consumption and production . Their emphasis on efficient
resource allocation, risk management and liquidity transformation highlights the
role of banks in directing funds toward sustainable economic activities .By facilitating
credit allocation, banks can prioritize lending to businesses that adopt
environmentally friendly and socially responsible practices , thereby promoting
sustainable production
In summary, their framework underscores that banks, as intermediaries , are not
just passive fund distributors but active agents shaping economic behavior-potentially
steering economies toward more sustainable and responsible consumption and
production in Nigeria.

2.1.2 Institutional Theory

Institutional theory was not formulated by a single theorist but evolved
through contributions from multiple scholars across sociology, economics, and
organizational [Link] key scholars are as follows:
Max Webber– Early groundwork on how institutions (e.g., bureaucracy, religion)
shape societal behavior.
Philip Selznick Introduced institutionalization in organizations, arguing that
structures gain legitimacy beyond their formal role
John Meyer & Brian Rowan (1977) – Seminal work on institutional isomorphism,
showing how organizations adopt structures for legitimacy rather than efficiency.
Paul DiMaggio & Walter Powell (1983) – Expanded on isomorphism, identifying
coercive, mimetic, and normative pressures driving institutional conformity.
W. Richard Scott – Synthesized institutional theory, emphasizing regulative,
normative, and cultural-cognitive pillars of institutions. While no single "founder"
exists, Meyer & Rowan (1977) and DiMaggio & Powell (1983) are most cited for
institutional theory's modern organizational application. Institutional theory explains
how organizations and individuals conform to established norms, rules, and social
expectations to gain legitimacy and ensure survival, rather than solely pursuing
efficiency or rationality. It emphasizes that behaviors and structures are shaped by
external pressures from regulatory bodies, cultural beliefs, and professional standards,
leading organizations to adopt widely accepted practices—sometimes symbolically—
even if they don’t enhance performance. Over time, certain practices become
institutionalized, taken for granted as "the way things are done," creating consistency
across fields while potentially decoupling formal policies from actual operations. The
theory highlights how societal expectations drive organizational behavior, explaining
both meaningful reforms and superficial compliance in areas like sustainability,
governance, and corporate ethics.
Meyer and Rowan's institutional theory emphasizes that organizations adopt
responsible consumption and production (RCP) practices primarily to gain legitimacy
rather than for direct functional benefits. Their perspective suggests that sustainability
initiatives, such as environmental certifications or CSR reporting, often serve as
symbolic gestures to conform to societal expectations and institutional norms.
Companies may decouple these formal RCP commitments from their actual
operations, maintaining outward compliance while internal practices remain
unchanged. This behavior stems from institutional pressures—regulatory
requirements, industry standards, and cultural expectations—that compel firms to
align with prevailing sustainability trends. Ultimately, Meyer and Rowan's framework
reveals that RCP adoption is frequently driven by the need for organizational survival
and legitimacy rather than a genuine commitment to environmental or social impact.
Their theory underscores the role of institutional environments in shaping corporate
sustainability behavior, often prioritizing perception over substantive change.
Institutional theory explains how organizations and individuals conform to established
norms, rules, and social expectations to gain legitimacy and ensure survival, rather
than solely pursuing efficiency or rationality. It emphasizes that behaviors and
structures are shaped by external pressures from regulatory bodies, cultural beliefs,
and professional standards, leading organizations to adopt widely accepted practices
—sometimes symbolically—even if they don’t enhance performance. Over time,
certain practices become institutionalized, taken for granted as "the way things are
done," creating consistency across fields while potentially decoupling formal policies
from actual operations. The theory highlights how societal expectations drive
organizational behavior, explaining both meaningful reforms and superficial
compliance in areas like sustainability, governance, and corporate ethics .The theory
suggest that lasting responsible consumption and production transformation requires
constructing the institutional pillars - not just changing individual firms. This means
simultaneously reshaping regulations, redefining professional norms and transforming
professional norms, and transforming cultural conceptions of good production and
consumption.

2.1.3 Theory of Financial Inclusion

The theory of Financial inclusion does not have a single originator but has evolved
through through contributions from multiple economists, policy makers , and
institutions.
Muhammad pioneered micro finance via Grameen Bank (1980) demonstrating how
small loans could empower the poor , shaping modern inclusion practices.
While no single theorist owns the concept , these contributors collectively shaped its
principles , blending development economics , institutional theory and grassroots
finance innovations.
Financial inclusion theory explores how equitable access to financial services can
drive economic empowerment and reduce poverty . It recognizes the systemic barriers
such as high costs, lack of documentation and low financial literacy often exclude
marginalized populations from formal banking. The theory emphasizes the need for
inclusive financial systems that cater to undeserved groups through innovative
solutions like mobile banking , micro finance ,and digital payment platforms. A key
argument is that financial inclusion fosters broader economic growth by enabling
savings, investment , and risk mitigation for low - income household and small
businesses. However, achieving meaningful inclusion requires more than just access,
it demands affordability , usability , and consumer protection to prevent
exploitation .Policymakers, financial institutions and technology providers must
collaborate to create ecosystems where informal economies integrate with formal
financial [Link] inclusion plays a pivotal role in advancing responsible
consumption and production by empowering marginalized group to participate in
sustainable economic activities. The theory posits that access to formal financial
services such as credit, savings and insurance - enables low- income households and
small businesses to adopt Eco - friendly practices, invest clean technologies , and
transition from informal, often unsustainable , livelihood models.
At its core financial inclusion supports RCP by addressing structural barriers that
perpetuate resource - intensive behaviors . For instance , micro loans can help farmers
shift to organic agriculture , while digital systems reduce reliance on cash based
transactions linked to environmental waste.
Challenges remain , including the risk of over indebtedness from poorly regulated
credit expansion or the exclusion of women and rural communities from green finance
initiatives. Overcoming these gaps necessitates policies that couple financial access
with education on sustainable consumption , alongside incentives for financial
institutions to prioritize environmentally conscious lending.
Ultimately, the theory underscores that financial systems must evolve beyond
mere inclusion to actively foster responsible production and consumption patterns ,
ensuring that economic empowerment aligns with ecological and social sustainability.

2.2 Theoretical Review

2.2.1 Concept of Financial Intermediation
Financial intermediation is a fundamental economic process whereby institutions,
such as banks, micro-finance organizations, and fin-tech platforms, facilitate the flow
of funds between surplus units (savers) and deficit units (borrowers) in an economy.
According to Gurley and Shaw (1960), financial intermediation involves the creation,
transfer, and management of financial assets and liabilities to bridge the gap between
those with excess funds and those needing capital for productive activities. In Nigeria,
with a financial sector valued at 122.3 trillion Naira by 2020 (National Development
Plan 2021–2025), financial intermediation is critical for mobilizing savings, allocating
credit, and supporting sustainable development through economic growth and social
inclusion (Manasseh 2021)

[Link] Definition and Core Elements

Financial intermediation is defined as the process by which financial institutions act

as intermediaries to channel funds from savers to borrowers, reducing transaction
costs and information asymmetries (Diamond, 1984). Levine (2005) identifies three
core elements: (1) liquidity provision, enabling savers to access funds while providing
borrowers with long-term financing; (2) risk transformation, where intermediaries
manage credit, market, and liquidity risks; and (3) information processing, mitigating
adverse selection and moral hazard through screening and monitoring. In Nigeria,
these elements are evident in commercial banks’ lending to SMEs and fin-tech
platforms’ microloan services, as noted by Ogunode .
(2023), who found fin-tech increased financial inclusion to 44.2% by 2021.

[Link] Roles of Financial Intermediation

Financial intermediation plays several roles in an economy, particularly in developing
countries like Nigeria:
Mobilization of Savings: Intermediaries, such as banks, collect idle funds from
households and firms, transforming them into productive capital. Schumpeter (1934)
emphasizes that this process fuels economic growth by enabling investment. In
Nigeria, deposit money banks mobilized 48.7 trillion Naira in deposits by 2020,
supporting credit creation (CBN, 2020).
Credit Allocation: Intermediaries direct funds to productive sectors, such as
agriculture and manufacturing, fostering economic development. Manasseh et al.
(2021) found that private sector credit significantly drives Nigeria’s GDP growth,
though high lending rates limit access.
Risk Management: By pooling funds and diversifying portfolios, intermediaries
reduce risks for savers and borrowers. Diamond (1984) highlights their role in
monitoring borrowers to minimize default risks, a practice evident in Nigerian banks’
loan screening processes (Adewole, 2019).
Liquidity Provision: Intermediaries ensure savers can withdraw funds while offering
borrowers long-term loans, balancing liquidity needs (Gurley & Shaw, 1960). In
Nigeria, micro-finance banks provide short-term liquidity to small businesses,
supporting economic stability (Ozili, 2022).
Financial Inclusion: Intermediaries expand access to financial services, particularly
for underserved populations. Ogunode . (2023) note that fin-tech platforms like
Carbon enhance inclusion, aligning with sustainable development’s social equity
goals.
[Link] Types of Financial Intermediaries
Financial intermediaries in Nigeria vary by function and scope, as outlined by
Mishkin (2016):
Commercial Banks: These dominate Nigeria’s financial sector, offering deposits,
loans, and payment services. Access Bank and Zenith Bank, for instance, provide
SME loans critical for economic growth (Adewole , 2019).
micro-finance Institutions: These target low-income groups, providing micro-loans to
support small-scale enterprises. Eze (2021) highlight their role in improving Nigeria’s
HDI through financial access.
fin-tech Platforms: Emerging intermediaries like Flutter-wave and Carbon leverage
technology to offer digital loans and payments, expanding inclusion (Ogunode ,
2023).
Non-Bank Financial Institutions: These include insurance companies and pension
funds, which mobilize long-term savings for investment (Nzotta & Okereke, 2019).
Development Finance Institutions: Institutions like the Bank of Agriculture provide
targeted credit for sectors like agriculture, supporting sustainable development
(Manasseh , 2021).
[Link] Process of Financial Intermediation
The financial intermediation process involves several stages (Allen & Santomero,
1997):
Savings Mobilization: Intermediaries collect funds through deposits or digital wallets,
as seen in Nigeria’s fin-tech growth (Ogunode , 2023).
Credit Assessment: Intermediaries screen borrowers to assess creditworthiness,
reducing information asymmetries (Diamond, 1984).
Fund Allocation: Funds are disbursed as loans or investments to productive sectors,
such as agriculture, which received 1 trillion Naira via CBN’s Anchor Borrowers’
Programme by 2021 (CBN, 2021).
Monitoring and Repayment: Intermediaries monitor loan use and ensure repayment,
minimizing default risks (Adewole , 2019).
Risk Transformation: By pooling funds, intermediaries spread risks, ensuring stability
for savers and borrowers (Levine, 2005).
Financial intermediation is a vital mechanism for economic and social development
in Nigeria, mobilizing savings, allocating credit, and enhancing inclusion. Grounded
in financial intermediation, institutional, and inclusion theories, it supports sustainable
development, as evidenced by Nigerian studies (Manasseh , 2021; Ogunode, 2023).
However, addressing high rates and environmental sustainability is crucial for
maximizing its impact in 2021–2025.

2.2.2 Concept of sustainable Development In Nigeria

Sustainable development is a globally recognized paradigm that seeks to balance
economic prosperity, social equity, and environmental stewardship to meet present
needs without jeopardizing future generations’ capacities. The Brundtland
Commission defined it as “development that meets the needs of the present without
compromising the ability of future generations to meet their own needs” (World
Commission on Environment and Development, 1987, p. 43). In Nigeria, confronting
challenges like poverty, environmental degradation, and economic volatility,
sustainable development is pivotal for inclusive progress, as outlined in the National
Development Plan 2021–2025, targeting 5% annual GDP growth and poverty
reduction (Federal Government of Nigeria, 2021). This section delineates sustainable
development through its core types—economic, social, and environmental—along
with their inter-linkages and challenges.
[Link] Economic Sustainability
Economic sustainability involves fostering sustained growth, productivity, and
employment while preserving resources for long-term prosperity. Sachs (2015)
describes it as maintaining economic systems that support livelihoods without
depleting capital. In Nigeria, where oil contributed 70% of government revenue in
2020, economic sustainability hinges on diversifying into non-oil sectors like
agriculture, which accounted for 23.7% of GDP (Central Bank of Nigeria, 2020).
Financial intermediation supports this by channeling credit to productive sectors.
Manasseh, Okeke, Ogbuabor, and Onwumere (2021) found that private sector credit
drives GDP growth, fostering job creation in small and medium enterprises, a
cornerstone of economic sustainability. However, high lending rates, averaging 24%
in 2021, restrict credit access, limiting growth potential (Central Bank of Nigeria,
2021). Okoye, Nwankwo, and Eze (2019) highlight that credit to agriculture and
manufacturing enhances economic stability, but oil-centrist lending diverts funds from
sustainable sectors, posing a challenge for Nigeria’s 2021–2025 diversification
agenda. Strengthening credit allocation to non-oil sectors remains critical for
economic resilience.
[Link] Social Sustainability
Social sustainability prioritizes equity, inclusion, and human well-being, addressing
disparities in poverty, education, and health care. The United Nations (2015)
emphasizes its role in reducing inequality and empowering marginalized groups.
Nigeria’s poverty rate, affecting 40.1% of the population in 2019, underscores the
urgency of social sustainability (National Bureau of Statistics, 2019). Financial
intermediation, particularly through fin-tech, advances this by expanding financial
access. Ozili (2022) demonstrated that financial inclusion, reaching 44.2% by 2021,
reduces poverty and improves the Human Development Index (HDI), enabling access
to essential services like education and health care. Onwuka (2022) found that
financial deepening mitigates poverty, but urban-rural disparities and high lending
rates hinder inclusivity. Ogunode, Akintoye, and Adeyemo (2023) note fin-tech’s
empowerment of women and low-income groups, yet rural areas, home to 48% of
Nigerians, remain underserved, limiting social sustainability. Enhancing rural
financial access is essential for equitable development in 2021–2025.
[Link] Environmental Sustainability
Environmental sustainability seeks to preserve ecosystems, reduce pollution, and
promote renewable resources to mitigate climate change. Elkington (1997)
underscores its necessity for maintaining ecological balance for future generations.
Nigeria faces severe environmental challenges, including deforestation, oil spills, and
carbon emissions, which threaten biodiversity and livelihoods (World Bank, 2020).
The Central Bank of Nigeria’s 2023 green finance initiatives aim to fund renewable
energy and sustainable agriculture, but empirical research on their impact is limited
(Central Bank of Nigeria, 2023). Financial intermediation could bolster environmental
sustainability through green loans, yet Nigerian studies, such as Manasseh (2021) and
Okoye. (2019), largely neglect this dimension, focusing on economic and social
outcomes. This gap highlights the need for this study to explore intermediation
environmental contributions, particularly in funding green projects to support
Nigeria’s climate resilience goals in 2021–2025.
[Link] inter-linkages and Theoretical Foundations
The types of sustainable development are interlinked, requiring a balanced approach
for holistic progress. The triple bottom line framework, proposed by Elkington
(1997), integrates economic, social, and environmental performance, guiding
sustainable development strategies. In Nigeria, financial intermediation aligns with
this by supporting economic growth through credit, social inclusion via fin-tech, and,
potentially, environmental sustainability through green financing. The capability
approach, articulated by Sen (1999), emphasizes human development through access
to opportunities, supported by Ozili’s (2022) findings on inclusion’s social benefits.
Institutional theory, as per North (1990), highlights regulatory frameworks’ role, with
CBN policies enabling inclusion but needing stronger environmental mandates
(Central Bank of Nigeria, 2023). Eze, Nkamnebe, and Mgbemena (2021) note that
urban bias in financial deepening limits rural sustainability, reflecting institutional
constraints that require policy reforms to achieve balanced development.
[Link] Contextual Challenges and Policy Relevance
Nigeria’s sustainable development faces institutional, economic, and environmental
challenges. High lending rates and oil-centrist lending, as noted by Okoye (2019),
constrain economic and environmental progress, while urban bias limits social
sustainability in rural areas (Ogunode ., 2023). The United Nations’ Sustainable
Development Goals (SDGs), adopted in 2015, provide a global framework, with
Nigeria prioritizing SDG 1 (No Poverty), SDG 8 (Decent Work and Economic
Growth), and SDG 13 (Climate Action) (United Nations, 2015). Financial
intermediation supports SDG 1 and SDG 8 through inclusion and credit, but SDG 13
remains under-explored, justifying this study’s environmental focus. The National
Development Plan 2021–2025 emphasizes diversification, poverty reduction, and
climate resilience, with initiatives like the 1 trillion Naira Anchor Borrowers’
Programme funding agriculture (Central Bank of Nigeria, 2021; Federal Government
of Nigeria, 2021). Nigeria’s commitment to net-zero emissions by 2060 further
underscores environmental priorities (World Bank, 2020). This study leverages
sustainable development’s conceptual framework to examine financial intermediation
impact in Nigeria (2021–2025), addressing gaps in environmental and rural research
to inform policy for sustainable progress.
2.2.3 Concept of Responsible Consumption and Production
Responsible consumption and production (RCP), embodied as Sustainable
Development Goal 12 (SDG 12), is a vital component of sustainable development,
advocating for efficient resource use, reduced environmental impact, and equitable
economic benefits. The United Nations defines RCP as “doing more and better with
less” by minimizing waste, enhancing production processes, and promoting
sustainable consumer behaviors (United Nations, 2015, p. 22). In Nigeria, where
resource inefficiencies, waste mismanagement, and environmental degradation are
prevalent, RCP is crucial for sustainable development, as highlighted in the National
Development Plan 2021–2025, which prioritizes green growth and resource efficiency
(Federal Government of Nigeria, 2021). This section explores RCP through its
definition, dimensions, theoretical foundations, and contextual challenges, linking it
to financial intermediation role in Nigeria’s 2021–2025 sustainable development
agenda.
[Link] Definition and Principles
Responsible consumption and production involves optimizing resource use in
production and consumption cycles to reduce environmental harm while enhancing
economic and social outcomes. Elkington (1997) outlines its principles: resource
efficiency, waste minimization, and sustainable supply chains. In Nigeria, inefficient
resource use, such as in agriculture, which consumes 70% of water resources yet
yields low outputs, underscores RCP’s importance (World Bank, 2020). Financial
intermediation can support RCP by funding efficient technologies, as seen in the
Central Bank of Nigeria’s (CBN) 2023 green finance initiatives for sustainable
agriculture (Central Bank of Nigeria, 2023). However, research by Manasseh, Okeke,
Ogbuabor, and Onwumere (2021) focuses on economic growth rather than RCP,
indicating a gap this study addresses by exploring intermediation role in sustainable
practices.
[Link] Responsible Production
Responsible production emphasizes sustainable manufacturing and agricultural
practices that minimize environmental impact and optimize resources. Sachs (2015)
advocates for cleaner production techniques, such as energy-efficient technologies
and circular economy models, to reduce waste. In Nigeria, industrial activities,
particularly oil extraction, contribute to 80% of methane emissions, worsening climate
change (World Bank, 2020). The CBN’s Anchor Borrowers’ Programme, disbursing
1 trillion Naira by 2021, supports sustainable farming, but oil-centrist lending limits
broader adoption (Central Bank of Nigeria, 2021). Eze, Nkamnebe, and Mgbemena
(2021) suggest financial deepening could fund green technologies, yet urban bias in
credit allocation neglects rural producers, where 48% of Nigerians reside. This study
investigates how intermediation can enhance responsible production to align with
Nigeria’s 2021–2025 green growth objectives.
[Link] Responsible Consumption
Responsible consumption involves consumer behaviors that prioritize sustainable
products and reduce waste. The United Nations (2015) promotes informed choices,
such as purchasing eco-friendly goods, to lower environmental footprints. In Nigeria,
rapid urbanization drives over-consumption, generating 24 million tons of solid waste
annually, with only 20% managed (National Bureau of Statistics, 2020). Financial
intermediation, particularly fin-tech, can promote responsible consumption through
green loans for sustainable purchases, as suggested by Ogunode, Akintoye, and
Adeyemo (2023). However, low consumer awareness and high lending rates,
averaging 24% in 2021, hinder adoption (Central Bank of Nigeria, 2021). Ozili (2022)
links financial inclusion to social sustainability, but RCP’s consumption aspect is
under-explored, justifying this study’s focus on consumer financing mechanisms.
[Link] inter-linkages and Theoretical Foundations
Responsible consumption and production is interlinked with sustainable
development’s economic, social, and environmental pillars. The triple bottom line
framework, proposed by Elkington (1997), integrates these dimensions, advocating
for balanced progress. In Nigeria, RCP supports economic sustainability through
resource efficiency, social sustainability via equitable access to sustainable goods, and
environmental sustainability by reducing waste. Institutional theory, as articulated by
North (1990), emphasizes regulatory frameworks’ role, with CBN policies enabling
green finance but requiring stronger RCP mandates (Central Bank of Nigeria, 2023).
The circular economy theory, proposed by Stahel (2016), promotes resource reuse,
aligning with RCP’s objectives. Okoye, Nwankwo, and Eze (2019) suggest
intermediation could fund circular models, but empirical evidence is limited, a gap
this study addresses by examining intermediation RCP contributions.
[Link] Contextual Challenges and Policy Relevance
Nigeria’s RCP faces challenges, including inefficient production, waste
mismanagement, and low consumer awareness. Industrial inefficiencies cause 30%
energy waste, while poor recycling infrastructure exacerbates environmental
degradation (World Bank, 2020). High lending rates and urban bias, noted by
Ogunode et al. (2023), limit financing for sustainable practices, particularly in rural
areas. The National Development Plan 2021–2025 prioritizes green growth, with
initiatives like the CBN’s green finance framework supporting SDG 12 (Federal
Government of Nigeria, 2021). Onwuka (2022) links financial deepening to poverty
reduction, but RCP’s environmental focus is neglected, necessitating research on
green financing’s impact. Nigeria’s net-zero emissions target by 2060 underscores
RCP’s urgency (World Bank, 2020). This study examines how financial
intermediation can advance RCP in Nigeria (2021–2025), addressing gaps in
environmental financing and rural outreach to inform sustainable development
policies.

2.2.4 Concept of the effect of financial intermediation on sustainable

consumption and production
Responsible consumption and production (RCP), articulated as Sustainable
Development Goal 12 (SDG 12), advocates for efficient resource utilization, waste
reduction, and sustainable practices to minimize environmental degradation while
promoting economic and social benefits. The United Nations defines RCP as
achieving “more and better with less” through optimized production and consumption
patterns (United Nations, 2015, p. 22). Financial intermediation, the mechanism by
which banks, micro-finance institutions, and fin-tech platforms channel funds from
savers to borrowers, significantly influences RCP by financing sustainable initiatives
(Diamond, 1984). In Nigeria, where resource inefficiencies and waste
mismanagement exacerbate environmental and economic challenges, financial
intermediation role in RCP is vital for sustainable development, as emphasized in the
National Development Plan 2021–2025 (Federal Government of Nigeria, 2021).
[Link] Financing Sustainable Production
Financial intermediation supports responsible production by providing credit for
sustainable manufacturing and agricultural practices that optimize resources and
reduce environmental harm. Sachs (2015) highlights that access to finance enables
firms to adopt cleaner technologies, such as energy-efficient machinery. In Nigeria,
where industrial activities contribute 80% of methane emissions, financing green
technologies is vital (World Bank, 2020). The Central Bank of Nigeria’s (CBN)
Anchor Borrowers’ Programme, disbursing 1 trillion Naira by 2021, funds sustainable
farming practices, enhancing resource efficiency (Central Bank of Nigeria, 2021).
Manasseh, Okeke, Ogbuabor, and Onwumere (2021) found that private sector credit
drives economic growth, but its linkage to sustainable production is under-explored.
Eze, Nkamnebe, and Mgbemena (2021) suggest financial deepening could support
green technologies, though urban-biased lending limits rural producers’ access,
necessitating targeted financing to advance RCP.
[Link] Promoting Responsible Consumption
Financial intermediation fosters responsible consumption by offering financial
products, such as green loans, that encourage sustainable consumer behaviors. The
United Nations (2015) emphasizes informed consumer choices, like purchasing eco-
friendly goods, to reduce environmental footprints. In Nigeria, where 24 million tons
of solid waste are generated annually with only 20% managed, promoting sustainable
consumption is urgent (National Bureau of Statistics, 2020). fin-tech platforms,
expanding financial inclusion to 44.2% by 2021, provide digital loans for sustainable
purchases, as noted by Ogunode, Akintoye, and Adeyemo (2023). Ozili (2022) links
inclusion to social sustainability, but high lending rates, averaging 24% in 2021, and
low consumer awareness hinder RCP adoption (Central Bank of Nigeria, 2021). This
study examines how intermediation can incentivize responsible consumption through
accessible financing in Nigeria’s 2021–2025 context.
[Link] Supportive Rules and Policies
Financial intermediation role in RCP depends on rules and policies that guide how
loans are given out and encourage sustainable practices. North’s (1990) institutional
theory says clear regulations shape how money is used. In Nigeria, the CBN’s 2023
green finance rules push banks to fund eco-friendly projects, supporting RCP goals
(Central Bank of Nigeria, 2023). Okoye, Nwankwo, and Eze (2019) note that CBN
policies help grow the economy through loans, but weak environmental rules mean
less focus on RCP. Banks and fin-tech, backed by CBN’s fin-tech policies, could
drive RCP by offering more green loans, but loans still go mostly to oil businesses, as
Manasseh et al. (2021) observe. This study explores how better rules can help
intermediation support RCP in Nigeria’s 2021–2025 plans.
[Link] Ideas and Connections Behind RCP
The link between financial intermediation and RCP is backed by several big ideas.
The circular economy idea, from Stahel (2016), says reusing resources, like recycling,
is key, and banks could fund these efforts. Gurley and Shaw’s (1960) financial
intermediation concept explains how intermediaries make economies work better by
directing money to useful projects, like RCP initiatives. Onwuka (2022) shows
financial access reduces poverty, helping people afford sustainable goods. Elkington’s
(1997) triple bottom line connects economic, social, and environmental goals,
suggesting intermediation should fund projects balancing all three. Nigerian studies,
like Ozili (2022), focus on economic and social benefits but miss RCP’s
environmental side, a gap this study aims to fill by looking at intermediation full
impact on sustainable practices.s
[Link] Challenges and Opportunities
Nigeria’s RCP faces hurdles that financial intermediation can help tackle, like
wasteful production, poor waste management, and limited funding. Industries waste
30% of energy, and weak recycling systems worsen environmental harm (World
Bank, 2020). High loan rates and city-focused lending, as Ogunode (2023) note, limit
funds for sustainable practices, especially in rural areas, where 48% of Nigerians live.
The National Development Plan 2021–2025 pushes for green growth, with CBN’s
green finance supporting SDG 12 (Federal Government of Nigeria, 2021). Fin-tech’s
growth and green loan programs offer chances to fund RCP, as Eze (2021) suggest.
Nigeria’s goal of net-zero emissions by 2060 shows RCP’s importance (World Bank,
2020). This study examines how financial intermediation can overcome these
challenges to boost RCP in Nigeria (2021–2025), filling gaps in environmental
funding and rural access to shape sustainable development policies.

2.3 Empirical Review

Several recent studies have investigated on Financial intermediation and
sustainable development in Nigeria .Financial intermediation, involving banks, micro
finance institutions, and fin-tech platforms channeling funds from savers to
borrowers, is critical for Nigeria’s sustainable development. Nigerian researchers
have explored how these mechanisms support economic growth, financial inclusion,
and environmental sustainability, with indirect implications for SDG 12’s goals of
resource efficiency, waste reduction, and sustainable practices. Below, I review
empirical studies by Nigerian authors, focusing on their contributions to
understanding financial intermediation role in sustainable development and RCP.

Adebayo Oluranti Olufemi ,Taiwo Adewale Muritala ,Wasiu Akintunde Yusuf ,Saji
George (2024) examined the impact of Financial Intermediation on Economic Growth
in Nigeria. This study employed secondary data obtained from Central Bank bulletin
from year 1987 to 2020 .ARDL/Bound testing co-integration was used to establish the
short run and long run dynamic impact of Financial Intermediary on Economic
Growth in Nigeria This study therefore recommends that management of banks
should be encouraged to pursue policies that will deepen the efficient allocation of
financial services for economic growth in Nigeria.
Acha (2011) investigated the role banks play in economic growth. He used bank
deposits and bank credit to the private sector as variables for bank intermediation and
real gross domestic product (RGDP) to proxy economic growth. The Regression of
RGDP as dependent variable against bank deposit and credit confirmed that banks
through their intermediation function contribute to economic growth in [Link]
study employed secondary data from year 1990 to 2008. He recommended that banks
should be encouraged to expand credit to the private sector.
Tonye and Andabai (2014) also examined the relationship between financial
intermediation and economic growth in Nigeria for the period of 1988-2013 using a
vector error correction model. They found a long run equilibrium and positive
relationship between financial intermediation and economic growth in Nigeria.
[Link].,Praise Itoro and Ubi-Abia (2014) study examined the effects of
financial intermediation on economic growth in Nigeria. Annual time series data
covering 1970 to 2014 were used to analyze the long run and short run relationships
between financial intermediation variables and economic growth using econometric
techniques. Using bound testing technique for co-integration, a stable long-run
relationship was found between the financial intermediation variables and gross
domestic product. Error correction coefficient was statistically significant. It was
concluded that credit to private sector and savings have positive impacts on economic
growth in both short run and long-run. However, money supply has a negative
influence on economic growth. The causality tests revealed a bi-directional
relationship between inflation and economic growth, while a unidirectional causality
moves from savings to economic growth. It is recommended that the Central Bank of
Nigeria (CBN) should make sure more credits are channeled to the real sector of the
economy for effective production. Financial institutions, either government owned or
private, should give more credits to the private sector at bearable interest rates. The
Central Bank of Nigeria should ensure that the domestic credits provided by the
banking sector are appropriately used; and credit facilities should not be restricted to
the large-scale manufacturing industries; but it should also be extended to small and
medium scale enterprises.
This paper by Dumani Marjackson (2017) re-examined the impact of financial
intermediation on economic growth in Nigeria. The objective of the study was to
determine the dis-aggregate influence of credit to the private sector in Nigeria. To
achieve this, we adopted the ex post research design to determine how the explanatory
variables affects the dependent variable in retrospect. The study further adopted the
Engle Granger Representative Theorem to estimate the functional relationship in the
model. The empirical results predict that loans and advances to agriculture, fisheries
forestry, manufacturing sector and commercial bank credit to small scale enterprises
has a significant influence on economic growth in Nigeria. We therefore suggest that
banks should be more efficient in mobilizing and allocating funds to entrepreneurs in
the real sector. The policy implication of this is that regulatory authorities should
continue to take measures to liberalize the financial system to avoid any form of
shock on the system.
Kenny Soyemi(2019) Financial inclusion is a catalyst for achieving sustainable
development. This study attempts to evaluate impact of financial inclusion on
sustainable development. Both Error Correction Model (ECM) and Fully Modified
Ordinary Least Square (FMOLS) were used to ascertain the short-run and long-run
relationship respectively among the variables which covers the period from 2001 to
2016, as data for HDI (Human Development Index) were available for Nigeria from
2001 through 2016 [Link] result of the analysis indicated that in the short-run there
is short-run causality running from a number of commercial bank branches, demand
deposit from the rural areas, loan to rural areas to HDI. The long-run result revealed
that the explanatory variables consisting of loan to rural areas, number of commercial
bank branches and demand deposit from the rural areas all have positive significant
impact on HDI in Nigeria. The overall result revealed that financial inclusion has
impact on sustainable development in Nigeria.
Abere Mojisola Anne study investigated the effects of financial intermediation on
economic growth in Nigeria for the period of 35 years, which spanned from 1986
through 2020. The study employed Johansen co-integration and error correction
mechanism. The time series data on value of transaction, market capitalization,
financial intermediation ratio and real gross domestic are obtained from the World
Bank Database, and Nigerian Stock Exchange Statistical Bulletins. The study found
evidence of long run relationship between financial intermediation and economic
growth in Nigeria. The study further revealed that value of transaction, market
capitalization and financial intermediation ratio have positive and significant effect on
economic growth in Nigeria. This, therefore, implies that financial intermediation has
the propensity to stimulate economic growth in Nigeria to a desired state. Hence, the
study concluded that financial intermediation has positive and significant effect on
economic growth in Nigeria. It is recommended that efforts need to be made by the
Nigerian government in order to increase the level and size of market capitalization.
2.3.1 Gap in the Literature
Empirical studies on financial intermediation in Nigeria primarily focus on economic
growth, sidelining sustainable development aspects like responsible consumption and
production. They neglect environmental impacts, social equity, and regional
disparities, particularly in rural financial access. Non-bank intermediaries like fin-
tech, short-term economic dynamics, macroeconomic instability, and institutional
barriers are under-explored, with data limitations further restricting comprehensive
analysis.
2.4 Appraisal of Literature
The reviewed studies provide a robust foundation for understanding the role of
financial intermediation in Nigeria’s economic growth and, to a lesser extent,
sustainable development. Adebayo et al. (2024), Acha (2011), Tonye and Andabai
(2014), Ettah et al. (2014), Dumani (2017), and Abere (2020) consistently affirm a
positive long-run relationship between financial intermediation (e.g., bank credit,
deposits, market capitalization) and economic growth, proxied by RGDP. These
studies employ rigorous econometric methods (ARDL, VECM, Johansen co-
integration, ECM, FMOLS) and secondary data from reputable sources like the
Central Bank of Nigeria, World Bank, and Nigerian Stock Exchange, covering
periods from 1970 to 2020. Their findings highlight the critical role of credit to the
private sector, savings, and market capitalization in driving economic growth, with
Dumani (2017) offering nuanced insights into sector-specific impacts (e.g.,
agriculture, SMEs). Recommendations, such as expanding credit access and
liberalizing the financial system, are practical and policy-relevant.
However, the literature has notable limitations. Most studies focus narrowly on
economic growth, with limited attention to broader sustainable development
dimensions, such as responsible consumption and production, environmental
sustainability, or social equity. Soyemi (2019) is a notable exception, linking financial
inclusion to sustainable development via HDI, but even this study is constrained by
data limitations (2001–2016) and omits environmental considerations. The neglect of
non-bank intermediaries (e.g., fin-tech, micro finance) and regional disparities,
particularly in rural areas, limits the applicability of findings to inclusive
development. Additionally, macroeconomic factors like inflation (noted by Ettah
2014, as negatively impacting growth) and institutional barriers (e.g., regulatory
inefficiencies) are under-explored. The studies also lack analysis of short-term
dynamics and resilience to economic shocks, which are critical for policy design in
Nigeria’s volatile economy.
In conclusion, while the literature robustly establishes financial intermediation
positive impact on economic growth, it falls short in addressing responsible
consumption, environmental sustainability, and equitable access to financial services.
Future research should adopt a holistic sustainable development framework,
incorporate non-bank intermediaries, and address regional and macroeconomic
challenges to enhance policy relevance.