Measuring Financial Inclusion in the EU: Financial Inclusion Score Approach
The paper presents a new approach to measuring financial inclusion in the EU: a financial inclusion score that treats financial inclusion as the efficiency with which a financial system transforms the conditions of access (infrastructure, regulations, etc) into the actual use of financial services. This is important because it allows one to see which countries are the most efficient – and in case of efficiency laggards, the extent to which financial service use can realistically be increased, given existing conditions.
The paper is organized as follows:
- A short literature review summarizing prior efforts to define and measure financial inclusion;
- Proposed new composite measure – Financial Inclusion Score – which is derived from the application of data envelopment analysis (DEA) treating financial inclusion as efficiency measure of transforming inputs into outputs;
- Description of data envelopment analysis method and data used for the study;
- Discussion of the results and options for future research in this area.
The study shows that there is substantial variation among the member states in terms of financial inclusion score (FIS) although overall the majority of the countries are fairly advanced in their efforts to make the financial system inclusive. The FIS scores allow to classify the states into four categories: leaders, high performers, aspiring performers and laggards, with the leaders serving as the performance benchmarks for others to follow.