Financial Inclusion Index [FIIndex]

In August 2021, the apex bank of India, i.e. RBI, unveiled the first Financial Inclusion Index [FIIndex]. In collaboration with the government and relevant industry regulators, the Financial Inclusion Index [FIIndex] is designed as a comprehensive index that includes information on financial services, including banking, investments, insurance, postal services, and pensions.

It will be published once a year, in July. It is built without a 'base year,' and as a result, it represents all stakeholders' efforts over time to achieve financial inclusion.

Parameters of Financial Inclusion Index [FIIndex]

It consists of three main characteristics -

• Access (which constitutes 35 per cent of the index)
• usage (which makes up 45 per cent of the index)
• Quality (20 per cent of the index)

Each of which is further formed from multiple dimensions that are calculated using a diversity of indicators. For all 97 factors, the index is responsive to ease of access, availability and utilisation of services, and service quality.

Access refers to the physical and digital points of services available to the citizens provided by financial institutions

Usage refers to various financial services like remittance, insurance, credit, bank accounts, digital cash transactions etc.

Quality incorporates qualitative aspects of financial literacy, consumer protection, and service shortcomings and inequality.

Calculation of Financial Inclusion Index [FIIndex]

The Financial Inclusion Index [FIIndex] records information on many dimensions of financial inclusion in numerical ranging from 0 to 100, with the lowest, i.e. 0 denoting total financial exclusion and the highest, being 100, denoting complete financial inclusion.

The Financial Inclusion Index [FIIndex] for the fiscal year ending March 2021 crossed the halfway point at 53.9, up from 43.4 in 2017.

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Significance of Financial Inclusion Index [FIIndex]

The primary purpose of the Financial Inclusion Index [FIIndex] is to provide data on the extent to which people are financially included.

Financial services are evaluated for use in internal policymaking. It can be directly interpreted as an evaluation metric for development indicators. It makes it feasible to conform to the rules of the G20 Financial Inclusion Indicators.

It also makes it easier for the researchers to look into the effects of financial inclusion and other macroeconomic factors.

The third measure of the Financial Inclusion Index [FIIndex], i.e. Quality, necessitates both demand and supply-side interventions. Thus policies such as the Pradhan Mantri Jan Dhan Yojana, which opens bank accounts for unbanked households, or linking bank accounts to Aadhar to improve usability and access can be objectively evaluated.

Financial Inclusion Index [FIIndex] Goal

As interpreted from the Financial Inclusion Index [FIIndex], financial services have vastly improved, expanding beyond bank accounts to include credit, payments, microinsurance, and, eventually, mutual funds. The second goal is to increase financial literacy so that people can use electronic platforms to conduct banking and associated transactions and protect themselves from cybercrime.

According to the RBI, digital ID (Aadhaar), the rapid expansion in the usage of mobile phones, and superior payment methods have made it possible to improve financial inclusion. The RBI conceptualised and scaled up its Centre for Financial Literacy (CFL) programme in 2017 as a unique and participatory approach to financial literacy at the Block level, engaging select banks and non-governmental organisations to increase the Financial Inclusion Index [FIIndex] score.

FAQs on Financial Inclusion Index [FIIndex]

Q.1. When is the Financial Inclusion Index [FIIndex] published?

The Financial Inclusion Index [FIIndex] is prepared for each year and presented in July.

Q.2. What are the parameters of calculation for the Financial Inclusion Index [FIIndex]?

The parameters for the calculation of the Financial Inclusion Index [FIIndex] constitute access (35%), usage (45%), and quality (20%).

Q.3. What is India’s score on the Financial Inclusion Index [FIIndex] for 2021?

India crossed the halfway mark to score 53.9 on the Financial Inclusion Index [FIIndex] for 2021.

Q.4. How is the Financial Inclusion Index [FIIndex] calculated?

The Financial Inclusion Index [FIIndex] was computed without a base year to incorporate all stakeholders' efforts over time to achieve financial inclusion. It has three components, i.e. access, usability, and Quality. It is on a scale of 0 to 100, where 0 stands for no financial inclusion and 100 stands for complete financial inclusion.