#ShortReads: Know All About The RBI’s Financial Inclusion Index

It is said to be a great initiative, so what is it about?

On Tuesday, the Reserve Bank of India (RBI) introduced the Financial Inclusion index (FI-Index), and this index will be published every July. The creation of the index was announced by the Central Bank in its “Statement on Developmental and Regulatory Policies in the First Bi-monthly Monetary Policy Statement for 2021–2022”, which had come out on April 7, 2021.

The index aims to capture the extent of financial inclusion across the country. It has been conceptualised as a comprehensive index, incorporating details of banking, investments, insurance, postal and the pension sector in consultation with the government and respective sector regulators.

Wait, What’s Financial Inclusion?

According to the World Bank, financial inclusion means that individuals and businesses have access to useful and affordable financial products and services that meet their needs, such as transactions, payments, savings, credit and insurance, which are delivered in a responsible and sustainable way. Financial access facilitates day-to-day living, and helps families and businesses plan for everything — from long-term goals to unanticipated emergencies.

The World Bank Group considers financial inclusion as a major enabler to lower extreme poverty, and improve shared prosperity. Since 2010, over 55 countries have made commitments to financial inclusion, and more than 60 have either launched or are developing a national strategy.

More About The Index

The index has collated information on several aspects of financial inclusion in a single value ranging from 0 to 100. The digit 0 indicates total financial exclusion, while the digit 100 suggests complete financial inclusion. According to the RBI, the FI-Index consists of three parameters — access, usage, and quality.

Access to financial institutions would carry a weight of 35%, usage will carry a 45% weightage, and quality 20%. Each of these parameters will be composed of several dimensions, which are computed based on a number of indicators. The index will be responsive to ease of access, availability, and usage of services, and quality of services, comprising in all 97 indicators.

The Significance

Financial inclusion is important, and this index will track the financial inclusiveness of people, especially those who are not part of the banking system, small depositors in the banking, and postal system, micro investors, pensioners, and others. The idea behind the index is to make sure that everyone is financially empowered.

The World Bank, in their article, wrote that India is one of the countries that has achieved the most progress toward financial inclusion, with policies delivered at scale, like universal digital ID. Aadhaar / Jan-Dhan Yojana accounts that have covered over 1.2 billion residents. Apart from this, to promote financial inclusion, RBI has also established a pilot project in association with banks under which at least one district in each State/Union Territory would be 100% digitally enabled.

So, we can say that India is already taking measures to ensure financial empowerment for everyone, and we need more measures so that everyone can get access to affordable financial services. This index will help us understand how we are doing on that front, and at the end of the day, for a country to improve, every citizen in that country should have access to useful financial products.