Context: Recently, the Reserve Bank of India has released the Composite Financial Inclusion Index (FI-Index) for the year ended 31st March 2022 which has improved to 56.4 from 53.9.

Financial Inclusion Index

• Released by: Reserve Bank of India(RBI).

• Aim: To capture the extent of financial inclusion across the country by including details of banking, investments, insurance, postal as well as the pension sector.

• Objective: 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.

• Parameters: The index comprises three broad parameters — access (35% weightage), usage (45%) and quality (20%). Each of these parameters will consist of various dimensions, which are computed based on 97 indicators.

• The quality parameter includes aspects such as financial literacy, consumer protection, and inequalities and deficiencies in services.

• Scores: 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.

• Base Year: The index has been constructed without any “base year”. It reflects the cumulative efforts of all stakeholders.

What are the key findings of the index?

• The extent of financial inclusion across the country has increased to 56.4 in March 2022 showing growth across parameters.

• The index stood at 53.9 in March 2021. It was at 43.4 for the period ending March 2017. This shows rapid improvement in the reach of financial services over the past five years.

About Financial Inclusion

• It is defined as the process of ensuring access to financial services and timely and adequate credit where needed by vulnerable groups such as weaker sections and low-income groups at an affordable cost.

• In a diverse country like India, financial inclusion is a critical part of the development process. Since independence, the combined efforts of successive governments, regulatory institutions, and civil society have helped in increasing the financial-inclusion net in the country.

• Being able to have access to a transaction account is a first step toward broader financial inclusion since a transaction account allows people to store money, and send and receive payments. A transaction account serves as a gateway to other financial services.