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WHAT IS RBI’S FINANCIAL INCLUSION INDEX?

Financial Inclusion Index

On August 17, 2021, the Reserve Bank of India (RBI) launched a Financial Inclusion Index (FI-Index) to track the process of ensuring access to financial services, timely and adequate credit for vulnerable groups such as weaker sections and low-income groups at an affordable cost.

The Fi-Index is a comprehensive index, incorporating details of banking, investment, insurance, postal, as well as the pension sector in consultation with government and respective sector regulators.

Purpose of financial inclusion index

RBI said that it has constructed FI-Index to capture the extent of financial inclusion across the country.

The index 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.

According to the central bank, the annual FI-Index for the period ending March 2021 is 53.9 as against 43.4 for the period ending March 2017.

RBI will be publishing Fi-Index annually in July every year.

Parameters of FI-Index

According to RBI, the FI-Index comprises three broad parameters- Access, Usage and Quality - each carrying different weightage.

Access to financial institutions carries a weightage of 35 per cent, Usage 45 per and Quality 20 per cent. Each of these consists of various dimensions, which are computed based on a number of indicators.

The central bank said the Index is responsive to ease of access, availability and usage of services, and quality of services, comprising all 97 indicators.

A unique feature of the Index 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 FI-Index has been constructed without any ‘base year’ and as such it reflects cumulative efforts of all stakeholders over the years towards financial inclusion.

RBI on FI-Index

RBI had announced setting up Financial Inclusion Index in the Statement on Developmental and Regulatory Policies in the first Bi-monthly Monetary Policy Statement for 2021-2022 dated April 7, 2021.

In July 2021, RBI Governor Shaktikanta Das had said financial inclusion promotes inclusive growth by making services, including credit and safety nets, available to the bottom of the pyramid.

Lessons from the past and experiences gained during the Covid-19 pandemic clearly indicate that financial inclusion and inclusive growth reinforce financial stability, said Das.

According to RBI, the scaling up of financial inclusion has been supported by the digital ID (Aadhaar), the proliferation of mobile phones and world-class payment systems.

Payment systems are a lifeline of an economy and are seen as a means of achieving financial inclusion. This is evident in the increase in the number of Prepaid Payment Instruments (PPI) issued. PPIs have grown at a compound annual growth rate (CAGR) of 53 per cent from 410 million in May 2017 to 2.26 billion in May 2021.

Steps to improve financial inclusion

The Reserve Bank of India (RBI) released the National Strategy for Financial Inclusion 2019-2024 on January 10, 2020.

Financial inclusion has a multiplier effect in boosting overall economic output, reducing poverty and income inequality, and in promoting gender equality and women empowerment.

RBI identified six strategic objectives of a national strategy for financial inclusion: universal access to financial services, providing basic bouquet of financial services, access to livelihood and skill development, financial literacy and education, customer protection and grievance redressal, and effective coordination.

For providing universal access to financial services, RBI noted that while schemes such as PMJDY have created the required banking infrastructure to enable financial inclusion, efforts are required to improve access to insurance and pension services. It recommended that every willing and eligible adult, who is enrolled under PMJDY, should be enrolled under an insurance or pension scheme by March 2020.

Similarly, for financial literacy and education, specific modules for target audience (children, entrepreneurs, senior citizens) should be developed through the National Centre for Financial Inclusion and centres for financial literacy should be expanded to reach every block in the country by March 2024.

LATEST UPDATES ON RBI’S FINANCIAL INCLUSION INDEX

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