Developing a Comprehensive Financial Inclusion Index
This paper develops an index to measure financial inclusion by taking into account three dimensions: supply, demand, and infrastructure. It also takes into account factors such as population growth, law and order situation, and corruption, which have adverse effects on financial inclusion. The paper constructs individual indices for each dimension and also a comprehensive index that considers drag factors. The comprehensive index is developed by using the displaced ideal method which satisfies all criteria of development indices including normality, anonymity, monotonicity, proximity, uniformity, and signaling (NAMPUS). It claims that although the index can be applied to many developing countries, it is most suited to Indian conditions and can be used to measure, comparative performance of Indian States, or the sub regions of the states. The paper covers the following sections in detail:
- Introduction to the financial inclusion scenario in India;
- Review of relevant literature covering both definitional aspects and measurement issues;
- Methodology used to design the index and computation of the required indices;
- Summary of the features of the comprehensive index.