Context: Recently, Reserve Bank of India (RBI) introduced the financial inclusion index (FI-Index) to capture the extent of financial inclusion in the country. This was among the announcements made in the first bimonthly monetary policy in April this year.
Need

• The opening of the Pradhan Mantri Jan-Dhan Yojana accounts has given millions of Indians access to financial products, the steps taken on the demand side are aimed at increasing public awareness.
• But FI-Index of 53.9 for 2020-21 indicates that 46.1 per cent of the parameters considered are still financially excluded.

About the Index

• A unique feature of the index is the parameter related to the quality of financial inclusion as reflected by financial literacy, consumer protection, and inequalities and deficiencies in services.
• It has been conceptualized as a comprehensive index incorporating details of banking, investments, insurance, postal, and the pension sector in consultation with government and respective sectoral regulators.
• The index will reflect 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.
• The FI-Index comprises three broad parameters, including access, usage and quality with each of these consisting of various dimensions computed on the basis of on several indicators. 
• The index is responsive to ease of access, availability and usage of services, and quality of services, comprising 97 indicators in all. 
• These parameters are the identification of the customer, reaching the last mile, and providing relevant, affordable and safe products.

Key Fact

• The index has been constructed without any “base year”, and reflects cumulative efforts of all stakeholders. 
• It will be published annually in July. 
• The annual FI-Index for the period ending March 2021 is 53.9 as against 43.4 for the period ending March 2017.

Road Ahead

• Digital identity (Aadhaar), along with the proliferation of mobile phones with new payment systems, have addressed the first two challenges of access and usage to a large extent. “The third challenge, i.e. quality, requires both demand and supply side interventions. Opening of Pradhan Mantri Jan Dhan Yojana accounts has enabled millions to have access to financial services. This has addressed the supply side issue to a considerable extent.