Indian Journal of Finance

Open Access Open Access  Restricted Access Subscription Access

Measuring Financial Inclusion in India : An Approach


Affiliations
1 TSDPS, Planning Department, Government of Telangana State, Hyderabad, Telangana - 500 004, India
2 Department of Economics, CHRIST (Deemed to be University), Yeshwanthpur Campus, Bengaluru - 560 073, Karnataka, India

   Subscribe/Renew Journal


In light of the COVID-19-induced financial crisis, the need for robust financial services and networks has become more apparent than ever, which necessitated the accurate measurement of the breadth of financial inclusion in India. First, the study conducted a detailed critical review of the current indices and their construction methodology. Then, we created a financial inclusion index for India by accounting for the flaws existing in the current indices. The primary contribution of this study to the existing literature is the new approach it proposed for the assignment of weights in the financial inclusion index. Based on this new financial inclusion index, the study concluded that India’s Southern states and union territories showed better financial inclusion. In contrast, the traditionally backward BIMARU states of Bihar, Madhya Pradesh, Rajasthan, and Uttar Pradesh, and a few of the North Eastern states of India, lagged. The study also provided a refined and inclusive definition of financial inclusion based on its new approach to index creation.

Keywords

Financial Inclusion, Financial Inclusion Index, Financial Literacy, Financial Institutions, Financial Development.

JEL Classification Codes : C43, G2, O1

Paper Submission Date : May 10, 2021 ; Paper sent back for Revision : January 25, 2022 ; Paper Acceptance Date : July 30, 2022 ; Paper Published Online : January 15, 2023

User
Subscription Login to verify subscription
Notifications
Font Size

  • Ambarkhane, D., Singh, A. S., & Venkataramani, B. (2016). Measuring financial inclusion of Indian states. International Journal of Rural Management, 12(1), 72–100. https://doi.org/10.1177/0973005216633940

  • Amidži?, G., Massara, A., & Mialou, A. (2014). Assessing countries' financial inclusion standing — A new composite index (Working Paper No. 14/36). International Monetary Fund. https://www.imf.org/external/pubs/ft/wp/2014/wp1436.pdf

  • Arora, R. U. (2010). Measuring financial access (Working Paper No. 2010-07). Griffith University. https://research-repository.griffith.edu.au/bitstream/handle/10072/390305/2010-07-measuring-financial-access.pdf

  • Beck, T., Demirguc-Kunt, A., & Peria, M. S. (2007). Reaching out: Access to and use of banking services across countries. Journal of Financial Economics, 85(1), 234–266. https://doi.org/10.1016/j.jfineco.2006.07.002

  • Chakravarty, S. R., & Pal, R. (2013). Financial inclusion in India: An axiomatic approach. Journal of Policy Modeling, 35(5), 813–837. https://doi.org/10.1016/j.jpolmod.2012.12.007

  • CRISIL. (2013). CRISIL Inclusix: An index to measure India's progress on financial inclusion.https://www.crisil.com/en/home/our-analysis/publications/crisil-inclusix.html

  • CRISIL. (2014). CRISIL Inclusix: An index to measure India's progress on financial inclusion.https://www.crisil.com/en/home/our-analysis/publications/crisil-inclusix.html

  • CRISIL. (2015). CRISIL Inclusix: An index to measure India's progress on financial inclusion. https://www.crisil.com/en/home/our-analysis/publications/crisil-inclusix.html

  • Demirgüç-Kunt, A., & Klapper, L. (2013). Measuring financial inclusion: Explaining variation in use of financial services across and within countries (Brookings Papers on Economic Activity). https://www.brookings.edu/wp-content/uploads/2016/07/2013a_klapper.pdf

  • India Post. (2020). Post office networks. https://www.indiapost.gov.in/VAS/Pages/AboutUs/PostOfficeNetwork.aspx

  • Integrated Government Online Directory. (2020). Districts. http://www.goidirectory.gov.in/district.php

  • International Bank for Reconstruction and Development and The World Bank. (2014). Global financial development report 2014. https://openknowledge.worldbank.org/bitstream/handle/10986/16238/9780821399859.pdf

  • Kablana, A. S., & Chhikara, K. S. (2013). A theoretical and quantitative analysis of financial inclusion and economic growth. Management and Labour Studies, 38(1–2), 103–133. https://doi.org/10.1177/0258042X13498009

  • Kakkad, S. A., & Jadhav, H. V. (2021). A detailed analysis of selected digital payment systems in India. Arthshastra Indian Journal of Economics & Research, 10(1), 41–58. https://doi.org/10.17010/aijer/2021/v10i1/155366

  • Kaur, S., & Pasricha, J. S. (2019). Problems faced by bank employees in implementation of financial inclusion schemes. Indian Journal of Finance, 13(12), 34–49. https://doi.org/10.17010/ijf/2019/v13i12/149267

  • Kohli, N. (2013). Financial inclusion & its impact on banking sector in India. TECNIA Journal of Management Studies, 7(2), 08–13. https://tiaspg.tecnia.in/wp-content/uploads/2019/09/Tecnia_Journal_Vol_7_No-2_2014_compressed.pdf

  • Kumar, N. (2013). Financial inclusion and its determinants: Evidence from India. Journal of Financial Economic Policy, 5(1), 4–19. https://doi.org/10.1108/17576381311317754

  • Mahadeva, M. (2009). Understanding financial abandoning from a micro perspective: Policy responses to promote inclusion in India. Savings and Development, 33(4), 405–430. https://www.jstor.org/stable/41406504

  • Manji, A. (2010). Eliminating poverty? “financial inclusion,” access to land, and gender equality in international development. The Modern Law Review, 73(6), 985–1004. https://www.jstor.org/stable/40926558

  • Mor, N., & Ananth, B. (2007). Inclusive financial systems: Some design principles and a case study. Economic and Political Weekly, 42(13), 1121–1126. https://www.jstor.org/stable/4419410

  • NABARD. (2021). Status of microfinance in India 2020–2021. https://www.nabard.org/auth/writereaddata/tender/SoMFI-2020-21.pdf

  • Nandru, P., Anand, B., & Rentala, S. (2016). Exploring the factors impacting financial inclusion: Evidence from South India. Annual Research Journal of Symbiosis Centre for Management Studies, 4, 1–15. https://www.nabard.org/auth/writereaddata/tender/SoMFI-2020-21.pdf

  • Patanjali, S., & Subramaniam, D. (2019). India, The Fourth Industrial Revolution and government policy. Arthshastra Indian Journal of Economics & Research, 8(2), 32–44. https://doi.org/10.17010/aijer/2019/v8i2/145224

  • Rabo Foundation. (2020). The role of tech-enabled formal financing in agriculture in India. https://olc.worldbank.org/system/files/RaboBank%20200528_Agtech%20Study_Report_WB_V0.6%20%281%29.pdf

  • Raichoudhury, A. (2016). Financial inclusion & human development: A cross country analysis. Asian Journal of Business Research, 6(1), 34–48. https://dx.doi.org/10.14707/ajbr.160020

  • Rangarajan Committee, Ministry of Finance, Government of India. (2008). Report of the committee on financial inclusion. http://slbckarnataka.com/UserFiles/slbc/Full%20Report.pdf

  • Sarma, M. (2008). Index of financial inclusion (Working Paper No 215). Indian Council for Research on International Economics Relations. https://www.icrier.org/pdf/Working_Paper_215.pdf

  • Sarma, M. (2012). Index of financial inclusion – A measure of financial sector inclusiveness (Working Paper No. 07/2012). Berlin Working Papers on Money, Finance, Trade and Development. https://finance-and-trade.htw-berlin.de/fileadmin/HTW/Forschung/Money_Finance_Trade_Development/working_paper_series/wp_07_2012_Sarma_Index-of-Financial-Inclusion.pdf

  • Shettar, R. M. (2016). Financial inclusion: An overview. IOSR Journal of Business and Management, 18(2), 37–44. https://www.iosrjournals.org/iosr-jbm/papers/Vol18- issue2/Version-1/F018213744.pdf

  • Shukla, U. N. (2017). An empirical study on future of mobile - Wallets in India: A gateway for cashless payments. Arthshastra Indian Journal of Economics & Research, 6(6), 51–62. https://doi.org/10.17010/aijer/2017/v6i6/120117

  • Sonam, Aggarwal, S., & Bhushan, V. (2019). Impact analysis of the SHG-Bank linkage model on empowerment of women in Dehradun. Arthshastra Indian Journal of Economics & Research, 8(3), 20–31. https://doi.org/10.17010/aijer/2019/v8i3/146034

  • Tandon, P., & Singh, A. B. (2021). Antecedents and extent of financial inclusion: A cross-sectional study. Indian Journal of Finance, 15(3), 50–67. https://doi.org/doi:10.17010/ijf/2021/v15i3/158129

  • The World Bank. (2008). Finance for all? Policies and pitfalls in expanding access. https://openknowledge.worldbank.org/bitstream/handle/10986/6905/417920PAPER0Fi180 82137291301PUBLIC1.pdf?sequence=1&isAllowed=y

  • The World Bank. (2021). Personal remittances received (% of GDP) - India. https://data.worldbank.org/indicator/BX.TRF.PWKR.DT.GD.ZS?locations=IN

  • Thorat, U. (2007). Financial inclusion – The Indian experience. RBI Monthly Bulletin, 1165–1172. https://rbidocs.rbi.org.in/rdocs/Bulletin/PDFs/78680.pdf

  • Thorat, U. (2008). Inclusive growth - The role of banks in emerging economies. RBI Speeches and Interviews. https://rbidocs.rbi.org.in/rdocs/Speeches/PDFs/83282.pdf

  • World Bank Group. (2020). Digital Ag series: Emerging role of tech-enabled agriculture financing - 'AgFinTech.' https://olc.worldbank.org/content/digital-ag-series-emerging-role-tech-enabled-agriculture-financing-agfintech

  • Yadav, P., & Sharma, A. K. (2018). An investigation into factors affecting access to financial services in farmers' suicide prone Bundelkhand region of India. Indian Journal of Finance, 12(6), 46–62. https://doi.org/10.17010/ijf/2018/v12i6/128135

  • Yorulmaz, R. (2013). Construction of a regional financial inclusion index in Turkey. Journal of BRSA Banking and Financial Markets, 7(1), 79–101. https://www.bddk.org.tr/Content/docs/bddkDergiEn/dergi_0013_06.pdf


Abstract Views: 255

PDF Views: 0




  • Measuring Financial Inclusion in India : An Approach

Abstract Views: 255  |  PDF Views: 0

Authors

Sanjiti Kapoor
TSDPS, Planning Department, Government of Telangana State, Hyderabad, Telangana - 500 004, India
Vineeth Mohandas
Department of Economics, CHRIST (Deemed to be University), Yeshwanthpur Campus, Bengaluru - 560 073, Karnataka, India

Abstract


In light of the COVID-19-induced financial crisis, the need for robust financial services and networks has become more apparent than ever, which necessitated the accurate measurement of the breadth of financial inclusion in India. First, the study conducted a detailed critical review of the current indices and their construction methodology. Then, we created a financial inclusion index for India by accounting for the flaws existing in the current indices. The primary contribution of this study to the existing literature is the new approach it proposed for the assignment of weights in the financial inclusion index. Based on this new financial inclusion index, the study concluded that India’s Southern states and union territories showed better financial inclusion. In contrast, the traditionally backward BIMARU states of Bihar, Madhya Pradesh, Rajasthan, and Uttar Pradesh, and a few of the North Eastern states of India, lagged. The study also provided a refined and inclusive definition of financial inclusion based on its new approach to index creation.

Keywords


Financial Inclusion, Financial Inclusion Index, Financial Literacy, Financial Institutions, Financial Development.

JEL Classification Codes : C43, G2, O1

Paper Submission Date : May 10, 2021 ; Paper sent back for Revision : January 25, 2022 ; Paper Acceptance Date : July 30, 2022 ; Paper Published Online : January 15, 2023


References





DOI: https://doi.org/10.17010/ijf%2F2023%2Fv17i1%2F172601