Recently, the RBI came out with Financial Inclusion Index (FI-Index) to capture the extent of financial inclusion across the country. The FI-Index is a comprehensive index that incorporates details of the banking, investments, insurance, postal, and pension sector in consultation with the Government and respective sectoral regulators.
Introduction to financial inclusion
Financial inclusion is defined as the process of ensuring access to financial services and timely and adequate credit where needed by vulnerable groups such as weaker sections and low-income groups at an affordable cost. In a diverse country like India, financial inclusion is a critical part of the development process. Since independence, the combined efforts of successive governments, regulatory institutions, and civil society have helped in increasing the financial-inclusion net in the country. Being able to have access to a transaction account is the first step toward broader financial inclusion since a transaction account allows people to store money and send and receive payments. A transaction account serves as a gateway to other financial services.
What is the Financial Inclusion Index?
It is a comprehensive index incorporating details of banking, investments, insurance, postal, and the pension sector in consultation with the government and respective sectoral regulators. It was developed by the RBI in 2021, without any ‘base year’, and is published in July every year.
The aim of this index is to capture the extent of Financial Inclusion across the country. The FI-Index is responsive to ease of access, availability and usage of services and quality of services, consisting of 97 indicators.
There are basically three Parameters on which it will be based:
• It captures information on various aspects of financial inclusion in a single value ranging between 0 and 100, where 0 represents complete financial exclusion, and 100 indicates full financial inclusion.
• It comprises three broad parameters (weights indicated in brackets) viz., Access (35%), Usage (45%), and Quality (20%), with each of these consisting of various dimensions, which are computed based on several indicators.
• The index is responsive to ease of access, availability and usage of services, and quality for all 97 indicators.
Significance of FI Index (Financial Inclusion Index)
Measures Level of Inclusion: It provides information on the level of financial inclusion and measures financial services for use in internal policy making.
Development Indicators: It can be used directly as a composite measure in development indicators.
Fulfil the G20 Indicators: It enables fulfilment of G20 Financial Inclusion Indicators requirements. The G20 indicators assess the state of financial inclusion and digital financial services, nationally and globally.
Facilitate Researchers: It also facilitates researchers to study the impact of financial inclusion and other macroeconomic variables.
Pradhan Mantri Jan DhanYojana, Digital Identity (Aadhaar), National Centre for Financial Education (NCFE), Centre for Financial Literacy (CFL) Project, Expansion of financial services in Rural and Semi-Urban Areas, and Promotion of Digital Payments are some of the Initiatives to Increase Financial Inclusion in India.