Computation of Financial Inclusion Index for India
TL;DR: In this article, the authors study the determinants that measure the extent of financial inclusion and focus on the computation of an index that would comprehensively capture the impact of multi-dimensional variables with specific reference to India, using the latest available data.
About: This article is published in Procedia - Social and Behavioral Sciences.The article was published on 2012-01-01 and is currently open access. It has received 173 citations till now. The article focuses on the topics: Financial inclusion & Financial analysis.
Citations
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TL;DR: In this article, the authors assess the nexus between the vast dimensions of financial inclusion and economic development of the emerging Indian economy and find that there is a positive association between economic growth and various dimensions of finance inclusion, specifically banking penetration, availability of banking services, and usage of financial services in terms of deposits.
Abstract: Purpose
The purpose of this study is to assess the nexus between the vast dimensions of financial inclusion and economic development of the emerging Indian economy.
Design/methodology/approach
In this study, vector auto-regression (VAR) models and Granger causality test were followed to test the main research question in Indian context. The data were collected on various dimensions of financial inclusion and economic development for the period 2004-2013.
Findings
Empirical results and discussion suggest that there is a positive association between economic growth and various dimensions of financial inclusion, specifically banking penetration, availability of banking services and usage of banking services in terms of deposits. Granger causality analysis reveals a bi-directional causality between geographic outreach and economic development and a unidirectional causality between the number of deposits/loan accounts and gross domestic product. The results obtained favor social banking experiments in India with a deepening of banking institutions.
Research limitations/implications
This study is limited to the banking institutions and specifically to the emerging and developing economies.
Practical implications
This study analyzes the quantitative value of social banking experiments and governments’ efforts to enhance financial inclusion in terms of economic growth.
Social implications
Financial inclusion plays a key role in developing a strong and an efficient financial infrastructure, which facilitates the growth of an economy. The findings of the study reveal that there is a strong association between banking penetration and growth. The discussion leads in the favor of deepening of the banking institutions, and therefore, policymakers can look forward to these findings to maintain a sustainable-inclusive-developed economic system in an emerging economy like India.
Originality/value
This study is original in nature and includes recent evidence and efforts to promote financial inclusion in the Indian economy. The findings of this study will be of value to banks and policymakers.
214 citations
TL;DR: In this paper, the authors used some panel data models such as country-fixed effect, random effect and time fixed effect regressions, panel cointegration, and panel causality tests to examine the linkage between financial inclusion and economic growth.
Abstract: The purpose of this paper is to assess the dynamic impact of financial inclusion on economic growth for a large number of developed and developing countries.,This study uses some panel data models such as country-fixed effect, random effect and time fixed effect regressions, panel cointegration, and panel causality tests to examine the linkage between financial inclusion and economic growth. Panel cointegration is being used to test the long run association between financial inclusion and economic growth, whereas panel causality test is used to find the direction of causality between financial inclusion and economic growth. The data on financial inclusion are taken from Sarma (2012) for the period 2004-2010.,The empirical findings reveal that there is a positive and long run relationship between financial inclusion and economic growth across 31 countries in the world. Further, panel causality test shows a bi-directional causality between financial inclusion and economic growth Thus, the study confirms that financial inclusion is one of the main drivers of economic growth.,This study has two limitations. First, this study considers only banking institutions in the analysis. Second, the period tested for the long run relationship is not long enough.,This study empirically measures the quantitative impact of financial inclusion policies pursued across the world. The study also suggests that policies emphasizing financial sector reforms in general and promoting financial inclusion in particular shall result in higher economic growth in the long run.,This study attempts to assess the long run relationship between financial inclusion and economic growth with the help of a multidimensional index of financial inclusion. Therefore, this can be a valuable contribution to the banks and policymakers.
135 citations
01 Jul 2015
TL;DR: In this paper, the authors present a publication on financial inclusion in Africa, which is produced by the staff of the African Development Bank, and the views expressed therein do not necessarily reflect those of the Board of Directors or the countries they represent.
Abstract: Disclaimer This publication on Financial Inclusion in Africa is produced by the staff of the African Development Bank, and the views expressed therein do not necessarily reflect those of the Board of Directors or the countries they represent. Designations employed in this publication do not imply the expression of any opinion, on the part of the African Development Bank, concerning the legal status of any country or territory, or the delineation of its frontiers.
114 citations
Additional excerpts
...After the publication of Sarma (2008), authors such as Chakravarty and Pal (2010) and Gupte et al. (2012) developed modified financial inclusion indices, which have often been applied to Indian states....
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TL;DR: In this article, the authors used the index of financial inclusion and the World Bank Global Findex database to identify those factors significantly associated with financial inclusion, and found that an individual's income, education, and use of communications equipment are important factors that explain the level of financial exclusion.
Abstract: Using the index of financial inclusion and the World Bank Global Findex database, this study measures the level of financial inclusion across countries. The results reveal a geographical spatial aggregation distribution in which developed European and North American countries enjoy higher levels of financial inclusion than the less developed countries of Africa and most of Asia. Accordingly, our spatial analysis proves our hypothesis and reveals dependence and aggregation effects among countries. Then, we employ spatial econometric research to identify those factors significantly associated with financial inclusion. The results show that an individual’s income, education and use of communications equipment are important factors that explain the level of financial inclusion, while financial depth and banking health status are the main determinants. Building an inclusive financial system is an important means for most countries to achieve the Millennium Development Goals.
113 citations
TL;DR: Based on a Bayesian macroeconomic analysis framework, this article introduced the level of Internet development as a threshold variable and analyzed the impact of digital financial inclusion on economic growth based on provincial panel data from 2011 to 2019 in China.
90 citations
References
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TL;DR: In this paper, the authors model economic development as a process of institutional transformation by focusing on the interplay between agents' occupational decisions and the distribution of wealth, and demonstrate the robustness of this result by extending the model dynamically and studying examples in which initial wealth distributions have long-run effects.
Abstract: This paper models economic development as a process of institutional transformation by focusing on the interplay between agents' occupational decisions and the distribution of wealth. Because of capital market imperfections, poor agents choose working for a wage over self-employment, and wealthy agents become entrepreneurs who monitor workers. Only with sufficient inequality, however, will there be employment contracts; otherwise, there is either subsistence or self-employment. Thus, in static equilibrium, the occupational structure depends on distribution. Since the latter is itself endogenous, we demonstrate the robustness of this result by extending the model dynamically and studying examples in which initial wealth distributions have long-run effects. In one case the economy develops either widespread cottage industry (self-employment) or factory production (employment contracts), depending on the initial distribution; in the other example, it develops into prosperity or stagnation.
2,906 citations
TL;DR: In this paper, the authors present estimates of the fraction of the adult population using formal financial intermediaries using bank and micro-finance data. And they compare these estimates with household surveys for a smaller set of countries.
Abstract: This paper presents estimates, for more than 160 countries, of the fraction of the adult population using formal financial intermediaries. The estimates are constructed by combining information on account numbers at banks and microfinance institutions (together with banking depth and GDP data) with estimates from household surveys for a smaller set of countries. An illustrative application of the data compares them with information on poverty: there is a correlation, but it is not clearly causal.
565 citations
TL;DR: In this paper, the authors review the evidence on the importance of finance for economic well-being, provide data on the degree of usage of basic financial services by households and firms across a sample of countries, assesses the desirability of more universal access, and overviews the macroeconomic, legal and regulatory obstacles to access using general evidence and case studies.
Abstract: This paper reviews the evidence on the importance of finance for economic well-being, provides data on the degree of usage of basic financial services by households and firms across a sample of countries, assesses the desirability of more universal access, and overviews the macro-economic, legal and regulatory obstacles to access using general evidence and case studies. Although access to finance can be very beneficial, the data show that universal usage is far from prevalent in many countries, especially developing countries. At the same time, universal access has generally not been a public policy objective and is surely not easily achievable in most countries. Countries can, however, undertake many actions to facilitate access to financial services, including through strengthening their institutional infrastructures, liberalizing and opening up their markets and facilitating greater competition, and encouraging innovative use of know -how and technology. Government attempts and interventions to directly broaden the provision of access to finance, however, are fraught with risks and costs, among others, the risk of missing the targeted groups. The paper concludes with possible global actions aimed at improving data on access and usage and areas of further analysis to help identify the constraints to broadening access.
498 citations
Posted Content•
TL;DR: This article proposed an index of financial inclusion (IFI) which is a multi-dimensional index that captures information on various dimensions of inclusion in one single digit lying between 0 and 1, where 0 denotes complete financial exclusion and 1 indicates complete financial inclusion in an economy.
Abstract: The promotion of an inclusive financial system is considered a policy priority in many countries While the importance of financial inclusion is widely recognized, the literature lacks a comprehensive measure that can be used to measure the extent of financial inclusion across economies This paper attempts to fill this gap by proposing an index of financial inclusion (IFI) The IFI is a multi-dimensional index that captures information on various dimensions of financial inclusion in one single digit lying between 0 and 1, where 0 denotes complete financial exclusion and 1 indicates complete financial inclusion in an economy The proposed index is easy to compute and is comparable across countries
345 citations
TL;DR: In many developing countries less than half the population has access to formal financial services, and in most of Africa less than one in five households has access as discussed by the authors. But not all government actions are equally effective and some policies can even be counterproductive.
Abstract: In many developing countries less than half the population has access to formal financial services, and in most of Africa less than one in five households has access. Lack of access to finance is often the critical mechanism for generating persistent income inequality, as well as slower economic growth. Hence expanding access remains an important challenge across the world, leaving much for governments to do. However, not all government actions are equally effective and some policies can even be counterproductive. This paper sets out principles for effective government policy on broadening access, drawing on the available evidence and illustrating with examples. The paper concludes with directions for future research.
312 citations