Finclusion Index_105 Countries

Published: 2 February 2023| Version 1 | DOI: 10.17632/j7cjs4kyx3.1
Contributor:
Thakur Dev Pandey

Description

Finclusion Index is constructed through Human Development Report (HDR) 2010 methodology using the data from Global Findex Database 2021. Due to the missing or unavailability of data for key observations in the Global Findex Database 2021 report for some countries, Finclusion index is reported for 105 countries. The selection of Finclusion Index dimensions is based on measuring the intensity of financial inclusion which are based on the fundamental definition of financial inclusion, i.e., providing easy access of banking services such as saving and deposit bank account, credit facility, insurance and other related credit services to mass population, thus, the financial inclusion for a nation can be quantified using the dimensions including, percent of population (above 15 year age) having active bank account, the frequency of using bank account or banking services which include using credit card, debit card, mobile banking, or any other banking related service such as unified payment system, and internet banking service and finally, how easily one can participate in banking service. Dimension 1 Active Bank Account Per cent of the population have an active bank account with a financial institution. Financial institution account (% age 15+). Dimension 2 Frequency of using Bank Account Percent of the population uses banking services such as ATMs, debit cards, credit cards, and mobile banking. Used a credit card (% age 15+) Used a debit card (% age 15+) Use a mobile phone or the internet to make payments, buy things, or to send or receive money using a financial institution account (% with a financial institution account, age 15+), Made a deposit (% with a financial institution account, age 15+)), (Withdrew money from a financial institution account 2 or more times a month (% age 15+). Dimension 3 Ease of opening a bank account D3 measures the difficulty in opening a bank account and using banking services. No account because financial institutions are too far away (% without an account, age 15+) No account because financial services are too expensive (% age 15+) No account because of insufficient funds (% age 15+) No account because of a lack of necessary documentation (% age 15+) No account because of a lack of trust in financial institutions (% age 15+); No account because of religious reasons (% age 15+); No account because someone in the family has one (% age 15+) Finclusion Index: Finclusion Index is constructed as a geometric mean of three dimensions namely D1 (Active bank account), D2 (Frequency using bank account) and D3 (Ease of opening bank account). The higher value of the Finclusion Index shows a higher degree of financial inclusion, and the lower value shows a lower degree of financial inclusion in the region. Finclusion Index = ∛(D1.D2.D3)

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Each dimension Dij contains n number of subdimension δi.j. Di = (δ1.j , δ2.j, δ3.j, ..., δn.j) We standardize each dimension δij so that each dimension’s value lies between 0 and 1 as: - δij = (Observed-Minimum)/(Maximum-Minimum) where, i = dimension number j = sub-dimension number Di= (∑(i,j=1)^n (δi.j)/n Dimension 1: - δ 1: Having an active bank account. D1 = δ 1 Dimension 2: - δ 2.1: Using a credit card. δ 2.2: Using the debit card. δ 2.3: Mobile banking δ 2.4: Other banking services D2 = (∑(j=1)^4 (δ2.j)/4 Dimension 3: - ε 3.1: Not having a bank account because banks are far away ε 3.2: Not having a bank account because banks services are expensive ε 3.3: Not having a bank account because no funds ε 3.4: Not having a bank account because of no documents ε 3.5: Not having a bank account because of other reasons ε 3. j is a negative subdimension relative to financial inclusion as a higher value of ε 3. j shows a higher degree of financial exclusion, so we standardize the sub-variable ε 3.j as σ 3 = (∑(j=1)^5 ε3j)/5 D 3 = 1 – σ 3 Finclusion Index: Finclusion Index is constructed as a geometric mean of three dimensions namely D1 (Active bank account), D2 (Frequency using bank account) and D3 (Ease of opening bank account). Finclusion Index = ∛(D1 .D2.D3) Where, D1 = Active Bank Account D2 = Frequency using Bank Account D3 = Ease of opening bank account

Institutions

Manipal University - Jaipur Campus

Categories

Banking, Economics, Financial Economics, Inclusion

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