On August 17, Reserve Bank of India (RBI) unveiled its newly conceptualized Financial Inclusion Index. The intention was to “capture the limits of financial inclusion across the country”. But only two numbers were announced: the index stood at 53.9 for the period ended March 2021, compared to 43.4 for the period ended March 2017. The press release had little information on the index; 97 indicators were used to build this index on three broad parameters: access (35%), utilization (45%) and quality (20%), with their respective weights in the index mentioned in parentheses. There is no base year. But 0 measures complete financial exclusion and 100 indicates complete financial inclusion. At a conceptual level, the index aims to capture much more than a single table measuring the country’s progress on financial inclusion in the RBI’s annual report.
In September, the RBI Monthly Bulletin gave us an article detailing the methodology and some more details on the index. As the index looks beyond just banking services to include insurance, pension and digital payments, the approach taken for financial inclusion is broader than mapping progress under financial inclusion schemes. Of the three categories, access, usage and quality, as expected, there has been more progress on access, with access being the most backward. In the period March 2017 to March 2021, the access sub-index increased from 61.7 to 73.3; The utilization sub-index increased from 30.8 to 43, and the quality sub-index increased from 48.5 to 50.7 the lowest. Although the 97 indicators used are not listed in this note, it is heartening to see that inequality at the district level is being mapped as an indicator of quality.
Why is data on financial inclusion important? Financial inclusion is one of the most important objectives for long-term equitable growth and a financially stable economy. A country where a large part of its population is excluded from the financial sector, as it is currently in India, would not only be equitable, but would also have a relatively weak financial sector. The greater the number of independent and heterogeneous participants in the financial sector, the greater its depth, creating conditions for greater innovation and competition. Hence financial inclusion is a policy objective which has many benefits. Historically, however, inclusion has been less than desirable, despite significant policy and regulatory interventions in the financial sector. The recent rapid increase in access to bank accounts is the beginning of a long journey, necessitating several changes at the central and state level for policy makers, regulators, industry and even consumers. Therefore, a good measure of financial inclusion will help in monitoring and benchmarking India’s performance and not just as a stakeholder.
As analysts tracking financial inclusion in India since 2006, we have found that relevant data is difficult to obtain. There has been a heavy reliance on surveys, with the World Bank Findex and Financial Inclusion Insights data giving us some idea of trends in access and use every two years. However, the RBI is indeed in the best position to bring in a comprehensive national database, as the data already required by the banking system is already captured, even if it is not placed in the public domain. Given the diversity of a country like India, the more granular the data, the more insights and easier it is to pinpoint specific issues that affect different segments of consumers in different locations so that appropriate solutions can be designed.
What other information can provide us a better picture of the country’s progress on financial inclusion? First, the RBI should disclose the details of the indicators it has used for each of the three categories, access, utilization and quality.
From 2014, we at the Indicus Center for Financial Inclusion make a case for better metrics to track financial inclusion beyond the number of active/inactive agents, bank accounts to include data on account usage, quality, and business correspondents etc. are making. of service/transaction, etc.
Ideally, data should be released on each indicator, as this can help service providers and India’s central and state governments to focus their efforts more effectively.
Second, however useful the national number may be, it hides large regional disparities in India. At a minimum, we need district-level data on all indicators to understand where additional support is needed.
Third, and this is quite important, we need a breakup across all categories for gender at the district level. India had resolved to close the gender gap in financial inclusion by implementing the Denarau Action Plan adopted in Fiji at the 2016 Global Policy Forum. The first step in this direction would be to generate gender-wise data on financial services. Intuitively, and unintentionally, this suffices to show that India has a very wide gender gap, with some areas being better than others, but hardly any official data. For example, we do not know the number of female business correspondents active in each district, or how actively female customers use their bank accounts.
It is important that this data is as geographically granular as possible. Financial service providers have little incentive to design solutions with an appropriate gender-lens, regardless of existing shortcomings.
The purpose of any data or index is to give us clues on how to proceed. For meaningful financial inclusion, we must have meaningful metrics in the public domain.
Sumita Kale and Lavish Bhandari with Indicus Center for Financial Inclusion
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