Financial inclusion refers to the process of ensuring that people, especially vulnerable groups such as the low-income sectors and weaker sections, have access to financial services and timely and adequate credit at an affordable cost. In a diverse country like India, efforts to enhance financial inclusion has been put in place, especially with the initiatives from successive governments, regulatory institutions, and civil society. With these combined efforts, there is a notable increase in the financial-inclusion net in the country.
The Financial Inclusion Index (FI-Index)
The Reserve Bank of India released the Composite Financial Inclusion Index (FI-Index) for the year ended 31st March 2022. This comprehensive index incorporates details of banking, investments, insurance, postal and pension sector in consultation with the government and respective sectoral regulators. Developed by the RBI in 2021 without any ‘base year’, the FI-Index is published annually every July.
More than just a measure of financial inclusion, the FI-Index captures the extent of its use across the country. The index also measures the ease of access, availability, and usage of services and the quality of services, utilizing 97 indicators. The parameters of this index include Access (35%), Usage (45%), and Quality (20%). A single value ranging between 0 and 100 represents the information captured by the FI-Index—zero indicates complete financial exclusion, while 100 reflects full financial inclusion.
The Significant Role of FI-Index
The FI-Index offers several benefits. Firstly, it provides information on the level of financial inclusion. It also measures financial services for use in internal policy making. Secondly, it functions as a composite measure in development indicators. Thirdly, it helps fulfill the G20 Financial Inclusion Indicators requirements, which evaluate the state of financial inclusion and digital financial services both nationally and globally. Lastly, it supports researchers in studying the impact of financial inclusion alongside other macroeconomic variables.
India’s Improvement in Financial Inclusion Index
According to the findings of the recent FI-Index, India’s Financial Inclusion Index has improved from 53.9 in the previous year 2021 to 56.4. Improvements have been seen across all its sub-indices, including Access, Usage, and Equality.
Financial Inclusion as a Development Tool
Access to a transaction account serves as a crucial first step towards broader financial inclusion. Transaction accounts enable people to store money and facilitate sending and receiving payments, which makes them a gateway to other financial services.
Initiatives Promoting Financial Inclusion in India
Various initiatives have been implemented to increase financial inclusion in India. Some of these are Pradhan Mantri Jan Dhan Yojana, 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 the promotion of Digital Payments.
