Macro Dimensions of Financial Inclusion Index and its Status in Developing Countries

Abstract

Promoting financial inclusion is the priority of every country’s policymaker and financial experts. So that, every individual as well as business can get equal and affordable financial services. Because financial inclusion deals with providing affordable as well as equal access to financial products and services to the masses of the country, especially to the financially deprived entrepreneur as well as businesses. The importance of financial inclusion is widely recognized but the literature lacks the efficient, comprehensive, and updated measurement of financial inclusion which can be used to judge the accurate level of financial inclusion. This study tries to fulfill this gap by constructing an updated and comprehensive index of financial inclusion for developing countries by using the updated data from 2005 to 2020. This updated data is collected from the world bank, the central banks of every country, and the finance divisions of every country. Furthermore, this study constructs a macro-level multidimensional index of financial inclusion by using socio-economic and financial dimensions. The value of the constructed index lies between 0 to 1. This study divides the score of financial inclusion into three categories 0 to 0.30 for low financial inclusion, 0.31 to 0.50 for medium financial inclusion, and 0.51 to 1 for high financial inclusion. The present index reveals that all developing countries have a medium and lower level of financial inclusion. Estonia is the only country that achieve higher financial inclusion in 2009-10. This proposed index gives the updated measurement of financial inclusion which is easy to compare among economies.