The Reserve Bank of India (RBI) has recently launched its inaugural Financial Inclusion Index (FI-Index). This index, with an annual release schedule set for every July, measures the level of financial inclusion in India. For the financial year ending March 2021, the FI-Index surpassed the halfway point, scoring 53.9 as opposed to 43.4 for the same period the previous year.
Understanding the FI-Index
The FI-Index was developed through collaborations with the government and various sectoral regulators to offer a comprehensive picture of the banking, investment, insurance, postal, and pension sectors in India. It operates without a designated ‘base year’, allowing it to reflect the combined efforts made over time towards financial inclusion.
The purpose of the FI-Index is to track financial inclusion across the country. The index aggregates information on different aspects of financial inclusion into a single numerical value between 0 and 100. A score of 0 signifies total financial exclusion while a score of 100 indicates complete financial inclusion.
Three main categories – Access (35%), Usage (45%), and Quality (20%) – form the framework of the FI-Index. Each category encompasses various dimensions that are calculated based on specific indicators. The index prioritizes ease of access, availability and usage of services, and quality of service across 97 unique indicators.
Significance of the FI-Index
The FI-Index is significant in several ways. It provides valuable insights into the level of financial inclusion in India and the availability and efficacy of financial services, which can be used to inform policy making.
In addition to its role as a reference point for development indicators, the FI-Index also helps India meet the requirements of the G20 Financial Inclusion Indicators. These indicators measure the extent of financial inclusion and the use of digital financial services at the national and global levels.
Researchers can also leverage the FI-Index to examine the impact of financial inclusion on other macroeconomic factors.
Complementary Initiatives
Several initiatives have complemented India’s progression towards financial inclusion. The Pradhan Mantri Jan Dhan Yojana, announced in August 2014, has been a stable instrument for financial inclusion. To date, approximately 43 crore underprivileged beneficiaries in India have gained access to basic bank accounts due to this initiative.
Furthermore, the advent of Digital Identity, or Aadhaar, has spurred financial inclusion and innovation in the delivery of fiscal services.
The National Centre for Financial Education (NCFE) has also played a significant role in promoting financial literacy, having released a strategic document for 2020-2025 outlining objectives towards creating a financially informed and empowered India.
Lastly, the Centre for Financial Literacy (CFL) Project, an innovative program launched by RBI in 2017, intends to enhance financial literacy on a broad scale with the help of selected banks and non-governmental organizations. Initially trialed in 100 blocks, the project is now being expanded across the country, targeting nationwide coverage by March 2024.