Financial Inclusion Index

Relevance

• GS 3: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

Context

• Reserve Bank of India (RBI) has introduced the Financial Inclusion Index (FI-Index) to capture the extent of financial inclusion in the country.

Key points

• The annual FI-Index for the period ending March 2021 is 53.9 as against 43.4 for the period ending March 2017.
• It will be published in July every year.
• The Index has been conceptualized as a comprehensive index incorporating details of banking, investments, insurance, postal, and the pension sector in consultation with government and respective sectoral regulators.
• It captures information on various aspects of financial inclusion in a single value ranging between 0 and 100, where 0 represents complete financial exclusion and 100 indicates full financial inclusion.
• It comprises three broad parameters
  • ease of access (35%),
  • availability and usage of services (45%),
  • quality of services (20%),
• The index is responsive to all the three parameters and comprises a total of 97 indicators.
• A unique feature is the quality parameter, which captures the quality aspect of financial inclusion as reflected by financial literacy, consumer protection, and inequalities and deficiencies in services.
• The Index has been constructed without any ‘base year’ and as such it reflects cumulative efforts of all stakeholders over the years towards financial inclusion.

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Challenges in financial inclusion

• There are three broad challenges in improving the financial inclusion infrastructure in India. They are
  • identification of the customer,
  • reaching the last mile, and
  • providing relevant, affordable and safe products.

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What does the index infer?

• Digital identity through Aadhar card, along with the proliferation of mobile phones with new payment systems, have addressed the first two challenges of access and usage to a large extent.
• The third challenge, i.e., quality, requires both demand and supply side interventions.
• Opening of Pradhan Mantri Jan Dhan Yojana accounts has enabled millions to have access to financial services and it has addressed the supply side issue to a considerable extent.
• However, The FI-Index of 53.9, however, indicates that 46.1 per cent of the population are still financially excluded.
• It is worrying as several steps have been initiated by both the government and the RBI to undertake financial inclusion. These steps include
  • launch of the Pradhan Mantri Jan Dhan Yojana for unbanked sections of society,
  • digital payment revolution, and
  • entry of a host of players in the insurance and mutual fund segments over the last couple of years.

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