By Satyaki Paul
Recently, the Reserve Bank of India (RBI) Introduced the Financial Inclusion Index (FI-Index). This was done by the RBI to gauge how many citizens in India have access to banking and financial services and products and the usage and quality of such facilities. Earlier in the month of January, RBI had revealed the National Strategy for Financial Inclusion: 2019-2024, to achieve the objective of financial inclusion in a coordinated and time-bound manner.
All of these brings us to the first question: What is the Financial Inclusion Index?
This index was articulated by the RBI as a comprehensive measure that incorporates details of banking, investments, insurance, postal as well as the pension sector in consultation with the government and regulators. The index would aid in determining and assessing the extent of financial inclusion in India. Furthermore, it would note down information on numerous aspects of financial inclusion on a scale from 0 to 100, where 0 represents complete financial exclusion and 100 indicates full financial inclusion.
In this vein, Puneet Gupta, the cofounder of Kaleidofin, observed that it would be good to assess financial inclusion at the individual and country levels. He said a 100 on this score would mean that all customers are fully aware of all kinds of financial services, have access to all products and do not feel constrained to make transactions in current context.
Secondly, what are the parameters of the FI-Index?
There are three broad parameters with certain assigned weight agesuch as: (i) Access (35%), (ii) Usage (45%) and (iii) Quality (20%). In this context, each parameter consists of various dimensions computed based on 97 indicators.
Thirdly, what is the meaning of access in financial inclusion?
As per RBI, the notion of access in financial inclusion means access to bank branches, number of ATMs, banking correspondents and point-of-sales terminals per 1 lac adults.
Fourthly, what is the base year of this index?
As of now, the newly launched FI-Index doesn’t have a base year. The FI-Index for the year ended March 2021 is 53.9 as against 43.4 for the year ended March 2017. The index will be published annually on the month of July.
Lastly, what are the challenges in achieving financial inclusion?
In current context, the domain experts (on economics) opined that to push for complete financial inclusion, constrictions must be removed on the supply side (financial institutions) and the demand side (target segment). As per Puneet Gupta, “familiarity and awareness of financial products are missing for a large proportion of households who in turn end up giving financial services a complete pass”, so, as a resolution he stressed that the notion should be to focus on goals and to make end-consumers aware about how to make the best use of financial services to meet their goals and not lose out due to their lack of awareness.