The concept of financial inclusion was
first introduced in India in 2005 by the Reserve Bank of India. It
strives at offering banking and financial services to economically
underprivileged individuals. It aims to elevate the socio-economic
status of individuals regardless of their income or savings, ensuring
the marginalized make the best use of their money and receive
financial assistance. With the help of technology, more upstarts are
making financial inclusion a widespread reality.
Financial inclusion refers to the
financial access by enterprises and households to reasonably priced
and uplifting formal financial assistance. Access to financial
services can be basis several dimensions, for instance, geographic,
socio-economic, etc. Enterprises and individuals residing at different
geographic locations will require distinct services from
location-specific providers. Financial inclusion appropriately designs
products and services that are sustainable and meet the needs of
clients with a reasonable pricing structure. Financial institutions
that work towards financial inclusion indulge in different techniques
for effective delivery and provisions.
The development and efficiency of financial systems can have an
impact not only on aggregate growth but also on contracting
disproportionate income distribution and helping people out of poverty.
The sub-indices of Financial Inclusion majorly depend upon the
Access sub-index- This value is
largely driven by the growth over the years, and recently, in the
number of bank outlets manned by own staff, FBCs, total number of
savings accounts, post offices, number of subscribers in Mutual
Funds (MFs), JAM ecosystem, number of offices for insurance, Prepaid
Payment Instrument (PPI) issuers, and Point of Sale (PoS) terminals etc.
Usage sub-index- Usage has shown
highest growth as compared to other sub-indices, driven largely by
‘Insurance’, ‘Credit’ and ‘Saving & Investment’. Some of the
indicators under these dimensions which have shown substantial
growth include total number of credit accounts, amount outstanding
in the credit accounts, volume and value of Unified Payments
Interface (UPI) transactions. Increased use of direct benefit
transfer (DBT) for various government programmes also had a positive
impact on the index value through higher outstanding amounts in
Savings Bank (SB) accounts.
Of the three sub-indices, FI-Access with
the index value at 73.3, expectedly, is higher as compared to both
FI-Usage (43.0) and FI-Quality (50.7) which indicates that building
blocks for greater financial inclusion in the form of financial
infrastructure put in place over the years needs to be built upon by
deepening the FI through focusing on promoting ‘Usage’ and improving ‘Quality’.
However, before investigating what influences the measurement in
financial inclusion, it is imperative to assess the impact of
financial inclusion on society as a whole. Several financial inclusion
indicators depend upon multiple variables like outreach, usage,
The objective to establish indicators
are as follows-
- Include as many economies while maintaining originality to avoid
bias results for a cross country setting
- Standardizing the measure for all countries to develop a
consistent and robust method of financial inclusion
- To validate other findings
To reach a measurement, surveying the
people keeping in mind the socio-economic factors like occupation,
income, literacy, rural debt value, etc. are vital along with
understanding perception and acceptance of the services. Understanding
the perception will allow financial institutions to device services
accordingly while measuring the impact of these services on households.
Another important aspect for measuring
the efficacy of financial inclusion is collecting information on
credit data, deposits, remittances, insurances, etc. The idea is to
measure the impact and not simply open a bank account for the underprivileged.
One of the main challenges in the
measurement of financial access is the distinction between access to
financial services and actual use of services. This is because of the
presence of voluntary exclusion in the system. As per a study, 33% of
the people voluntarily exclude themselves from financial assistance.
This may be due to several reasons like lack of knowledge, cultural
barriers, religious beliefs, etc. Therefore, measuring the proportion
while regarding the voluntary exclusion is difficult.
The measurement of financial inclusion
is complex, attached with several layers and most importantly, linked
to a perception of different researchers. Although the measurement
calculates basis 3 vital aspects- financial participation, financial
capability and financial well-being, the exact measurement is still a
The concept and measurement of financial inclusion will face several
hurdles but ultimately bring effective policies and comprehensive
services that will benefit and uplift the underserved and underprivileged.