Previous studies have examined the effect of financial sector development on poverty reduction. This study is unique by adopting the UNDP broader measure of well-being, the Human Development Index (HDI) to provide an argument for financial sector development process and poverty reduction interrelationship in Nigeria for the period 1988-2017. Stationary properties of the series were tested by the ADF unit root test. The paper uses the Johansen Co-integration test to examine the existence of long run relationship among the variables. Generally, it was found that financial sector development has both positive and significant relationship with HDI used as proxy for poverty level. The result also indicates a significant positive relationship between aggregate credit (AGC) and HDI. This shows that financial sector development which manifests in the ability of the banking sector to facilitate borrowing and investment in income earning assets, and stimulate the private sector, in particular, small and medium scale enterprises (SMEs), impacts positively on HDI. Finding also shows that aggregate deposit (AGD) (deposit opportunities available to deposit money banks) is negatively related to HDI and significant. This perhaps suggests that the volume of deposit mobilization by deposit money banks in Nigeria is relatively low to what is needed to transform the economy as well as the standard of living of the people. Realising that Human development is a desideratum and sacrosanct in poverty reduction, the objectives of policies aimed at further strengthening the banking sector should be people focused.
Keywords: Deposit Money Banks, Human Development Index, Nigeria, Poverty Reduction, financial sector development
