- 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 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.
- 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.