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Meaning of Financial Inclusion
Financial inclusion is a term which in layman language can be defined as the access to services like loans ,bonds , ATM service etc. So simply meaning those individuals that have access to these services are financially included in the economy.
Talking about facts, it was found in a report of 2018 that around 1.7 bn people don’t even have a bank account and those without bank accounts are generally females and the rural poor.
It is further a very sorry state of affairs that our country doesn’t have basic digital literacy even after financial access. They don’t have proper knowledge and end up in financial frauds .Hence due to frauds people are sceptical to use these kinds of financial services .
India has been working on the goal of Financial inclusion in the country since independence. The nationalisation of banks was a landmark step in this direction.
Annual Financial inclusion index
The concept or the coming up of such an index was made public in the first Bi-monthly Monetary Policy of last year.
In this first Bi- monthly meeting the concept of an index that could identify the status of Financial inclusion in the country was made by the central bank of the country – Reserve Bank of India .
The Annual financial index is made to comprehend the details about various sectors like Pension sector , insurance , Banking and are the allied fields.
The Annual financial index ranges from 0 to 100 wherein higher the value the higher is the financial Inclusion. That clearly means that a value 0 will indicate complete financial exclusion from the economy while 100 will mean complete financial inclusion.
The Financial inclusion index or the FI- index has three pillars to it that are as follows –
- Access
- Usage and
- Quality
The above three are the subsets of the index and have a specific degree of importance that further decides the weight in calculation of the index . Access contributes to 35% while Usage and quality corresponds to 45 % and 20 % respectively.
These core parameters are dependent on other indicators and together they make the Financial inclusion index.
In total the index is found on the data from around 97 indicators from ease of access to availability , quality and use of these services.
A striking feature of the Financial inclusion index is its quality component. The quality component measures the quality aspect of the core principle ( financial inclusion) . According to this quality component various things like financial literacy among the citizens ,awareness about the consumer protection rights and various shortcomings of the financial sector are taken into consideration while accounting for this core pillar.Hence the quality aspect is the most crucial in terms of financial frauds and to create awareness among the rural people and decrease their hesitancy in using these financial services.
Rbi Launches Financial Inclusion Index 2021
As per the Annual financial inclusion index is concerned one can say that it is a brain child of the reserve Bank of India and was announced in the first Bi- monthly meeting of monetary policy committee.It said that the index will measure the overall financial inclusion which is necessary to identify the changes in terms of financial access , literacy and availability of other financial services across those sections which lacked it .The index will help in tracking the efficiency of the policy interventions of the government in this sector.
The index will be released every year in the month of July.As per the value of Annual financial inclusion index of 2021 it is 53.9 and as per 2017 the value was 43.4
The Annual financial inclusion index is not based on any particular base year .
The index is a reflection of the efforts by all the parties over the years.
Conclusion
The Annual financial inclusion index is a concept of the Reserve Bank of India. This concept was introduced last year in the first Bi -monthly monetary policy committee meeting. The Index is a measure of the financial inclusion in the country. The index will be used to track the effectiveness of the policies and initiatives taken by the government . The index will play an Instrumental role in inclusive growth. The index is based on three core pillars – Quality , Access and Usage and further 97 indicators contribute to the index. Among the index the most crucial is the Quality parameter that measures the literacy and usage of financial services as part of its quality aspect.
