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Post at: Sep 25 2021

RBI launches Financial Inclusion Index (FI-Index)

Recent Context 

  • On August 17, 2021 The Reserve Bank of India (RBI) announced the formation of a composite Financial Inclusion Index (FI-Index) to capture the extent of financial inclusion across the country.
  • The annual FI-Index for the period ended March 2021 stood at 53.9 compared with 43.4 for the period ended March 2017.
  • The FI-Index will be published in July every year.

Key Features of financial inclusion index

  • The index has been conceptualised as a comprehensive index incorporating details of banking, investments, insurance, postal as well as the pension sector in consultation with the government and respective sectoral regulators.
  • 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.

Parameters of FII

  • The FI-Index comprises three broad parameters (weights indicated in brackets)-
    • 1-Access (35%),
    • 2-Usage (45%),
    • 3-Quality (20%) 
  • Each of these parameters consisting of various dimensions, which are computed based on a number of indicators.
  • The index is responsive to ease of access, availability and usage of services, and quality of services for all 97 indicators.
  • 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.

Financial Inclusions 

  • Financial inclusion is the process of extending the reach of formal banking services and products to the unbanked population in the country. 

Importance of Financial inclusion

  • Financial inclusion strengthens the availability of economic resources and builds the concept of savings among the poor. 
  • Financial inclusion is a major step towards inclusive growth.
  • It helps in the overall economic development of the underprivileged population. 

Scheme related to Financial inclusion-

Pradhan Mantri Jan-Dhan Yojana (PMJDY) 

  • It is a National Mission for Financial Inclusion to ensure access to financial services, namely, a basic savings & deposit accounts, remittance, credit, insurance, pension in an affordable manner. 
  • Under the scheme, a basic savings bank deposit (BSBD) account can be opened in any bank branch or Business Correspondent (Bank Mitra) outlet, by persons not having any other account.
  • It was launched in 28 August 2014.
  • PMJDY accounts are eligible for Direct Benefit Transfer (DBT), Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY), Pradhan Mantri Suraksha Bima Yojana (PMSBY), Atal Pension Yojana (APY), Micro Units Development & Refinance Agency Bank (MUDRA) scheme.

Way Forward 

  • It would be useful if the RBI would break this index up across various segments so that there can be concentration on the specific sector. 
  • The progress so far is impressive for sure, but there could be a bias towards banking and further to areas where the government has pushed financial products as part of its social development programmes. 
  • This is a very good start made by the RBI which should be monitored regularly to gauge the pace of progress as it will help future policy formulation in the right direction.

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