FINANCIAL INCLUSION INDEX RISES TO 64.2 IN MARCH 2024

TAG: GS 3: ECONOMY

THE CONTEXT: The Financial Inclusion Index (FI-Index), which captures the extent of financial inclusion across the country, stood at 64.2 in March 2024 from 60.1 in March 2023, the Reserve Bank of India (RBI) reported recently.

EXPLANATION:

Financial Inclusion Index (FI-Index)

• The Financial Inclusion Index (FI-Index) is a measure developed by the Reserve Bank of India (RBI) to capture the extent of financial inclusion across India.
• The index provides a single numerical value, ranging from 0 to 100, where 0 indicates complete financial exclusion, and 100 signifies full financial inclusion.
• The index is designed to offer a comprehensive picture of the financial inclusion landscape in the country, incorporating various dimensions of financial access, usage, and quality.
• As of March 2024, the FI-Index has risen to 64.2 from 60.1 in March 2023, indicating a significant improvement in the level of financial inclusion across the country.
• This increase reflects growth across all sub-indices, demonstrating progress in multiple areas of financial inclusion.

Components of the FI-Index

• The FI-Index is composed of three broad parameters:
  • Access (35% weight):
    • This parameter measures the ease with which individuals can access financial services.
    • It includes dimensions such as the number of banking outlets, ATMs, and digital access points.
  • Usage (45% weight):
    • This parameter assesses how frequently and extensively financial services are used.
    • It includes indicators like the number of deposit accounts, credit accounts, insurance policies, and usage of digital payment systems.
  • Quality (20% weight):
    • This parameter evaluates the quality of financial services provided.
    • It considers factors such as customer satisfaction, financial literacy, and the efficiency of service delivery.
  • The index is responsive to changes in these parameters, capturing improvements in the availability, usage, and quality of financial services.

Key Drivers of Improvement

• The primary driver of the improvement in the FI-Index from March 2023 to March 2024 is the increased usage of financial services.
• This reflects a deepening of financial inclusion, as more individuals and businesses are actively engaging with the financial system.
• Enhanced access and quality of financial services have also contributed to this positive trend.

Comprehensive and Inclusive Approach

• The FI-Index has been conceptualized as a comprehensive measure, incorporating details from various sectors, including banking, investments, insurance, postal services, and pensions.
• This broad approach ensures that the index reflects the cumulative efforts of all stakeholders towards promoting financial inclusion over the years.
• The FI-Index is constructed without a base year, allowing it to measure continuous progress.

Historical Context

• The annual FI-Index for the period ending March 2021 was 53.9, compared to 43.4 for the period ending March 2017.
• This historical data highlights the significant strides made in financial inclusion over recent years.
• The FI-Index is published annually in July, providing a regular update on the state of financial inclusion in the country.

SOURCE: https://indianexpress.com/article/business/economy/financial-inclusion-index-rises-to-64-2-in-march-2024-9443459/