What’s Financial Inclusion Index (FI-Index)?

                                     by Rajeev Pathak

In this post, we are going to discuss What the Financial Inclusion Index is. What are its components? And how this is going to help in improving the economic conditions of an ordinary  Indian citizen.

India’s central bank, the Reserve Bank Of India (RBI) has launched a new index to measure the overall reach of financial products. This index will be known as Financial Inclusion Index (FI-Index) . 

What is Financial Inclusion:

Financial Inclusion (FI) aims to empower the Indian public with access to quality services in banking, insurance, investment, and in such other financial areas.

Initially, the FI campaign was launched with the opening of bank accounts about a decade back. However, a big boost was given to it when Shri Narendra Modi as a Prime Minister formed a Bharatiya Janta Party (BJP) led National Democratic Alliance (NDA) government,  at the center.

The NDA government commenced its FI drive with a great festivity all over the country by opening of  Prime Minister Jan-Dhan Yojana (PMJDY) Bank Accounts. This program was a great success.

The Prime Minister was so overwhelmed  with the achievement that he made a specific mention of  this particular achievement in his various public meetings abroad including the US and United Nations. He also thanked by writing an open DO (Demi-official) letter to the bank employees for making  this happen as a ‘siddhi’.

In the following years, PM Modi as a measure of social security announced the launching of insurance products for the general public at a nominal and affordable rate. These schemes were implemented through a savings bank account with a bank.  The salient features  of these insurance schemes are as under:

Pradhan Mantri Jivan Jyoti Bima Yojana (PMJJY):

This scheme provides a life cover of Rs. 2 lakh in the eventuality of the death of the insured person. The premium is only Rs.330/- debited in the bank account on yearly basis in the month of May.

Pradhan Mantri Suraksha Bima Yojna (PMSBY):

PMSBY is an accidental insurance group policy. Insurance of Rs.2 lakh is available at a small premium of Rs.12/- only. The premium is recovered from a savings bank account with a bank.

The RBI Governor Shri Shaktikanta  Das had announced  in his bi-monthly Monetary Policy statement on 7^th April 2021 about RBI’s plan of having an FI-Index.

Components of Financial Inclusion:

FI-Index will capture the extent of financial inclusion across the country.

The FI-Index will be a comprehensive index. It will include the details of banking, insurance, postal, and pension sectors.

The FI-Index comprises following three broad parameters:

 

Parameter	Weight % in Index
Access	35
Usage	45
Quality	20

Within these broad parameters, there will be 97 indicators with a number of dimensions to arrive to near to accurate data.

In these indicators, the inclusion of Quality,  as a parameter is a unique thing. This will capture financial literacy, consumer protection, and inequalities and deficiencies in services.

The FI-Index will capture  information on various aspects of financial inclusion in a single value ranging between 0 and 100. The lowest value 0 will represent complete financial exclusion and 100 indicates full financial inclusion.

There is no base year in FI-Index. The idea behind this is, what is achieved till today, is the achievement of one and all,  over the years.

The FI-Index will be published every year as of 31^st March in the month of July of the following financial year. To begin with, FI-Index for March 2017 is calculated as 43.4. As of 31^st March 2021, it stands at 53.9.

Benefits of FI- Index

The formation of FI-Index will go a long way in framing economic policies and their implementation. This will give a boost to an overall improvement in the financial health of the people.