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.
- Access (35% weight):
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.