Financial Inclusion Measures Research Articles

A Comprehensive Literature Review on Financial Inclusion

Financial inclusion refers to provision of formal financial services namely basic savings bank account, credit facilities, payment services, insurances and so on to the downtrodden and poor people at reasonably priced cost. This article discusses about research reviews of financial inclusion comprehensively in terms of its conceptual framework, nature and causes of financial exclusion, costs and consequences of financial exclusion, measurement of financial inclusion and role of financial inclusion on economic growth.

The Economy of Financial Inclusion in Nigeria: Theory, Practice and Policy

A large number of adults in developing countries lack access to formal financial services but there are many things that are required to reduce the number across nations. This study investigates through the use of questionnaire, the extent to which adults in Nigeria participate in financial inclusion measures as access to and use of bank accounts, mobile money and insurance services. The benefits and barriers to the use of these services were also identified. We found that though access to bank accounts is high, a majority of the respondents operate savings accounts. However, bank account ownership penetration ratio of 1.4 accounts to an adult including inactive accounts is very low. The use of bank accounts in receiving money from, and sending money to family members living far away helps to service and maintain good family bond typical of Africans where family ties are held in high esteem. Most adults use their accounts between one and five times in a month but 24.01% of the accounts are inactive in receiving deposits while 6.91% are inactive for withdrawal in a month. The most popular non-cash payment methods are ATM/Debit card and wire transfer/on-line payment. 59.58% of those who save used a bank account, 32.5% save with cooperative societies while 26.25% used daily contributors and rotational savings scheme. The use of mobile money and insurance services is very small among account holders. The highest self reported barrier to the use of bank account is lack of necessary documents. Account opening conditions and documentations need to be reduced while the KYC requirements should be tailored to take care of the realities in some areas. Increase in public enlightenment campaigns is required to low income earners, emphasising the benefits of financial inclusion to everybody using different languages, rather than just the middle class and the elite as it is currently done. There is need for stable electricity supply to drive the infrastructural facilities provided by banks, telecommunication companies and other related service providers such that fluctuation in internet and other network communication is reduced to the barest minimum if not fully eliminated, this also include ATMs and point of sales terminals. This will ensure stability and wider network coverage of these services as more ATM, POS, mobile money etc are deployed to areas not yet covered.

Developing a Comprehensive Financial Inclusion Index

In spite of efforts of six and half decades, poverty reduction in the country is not in sight. Rightly therefore, the 11th and 12th Five-Year Plans focus on inclusive growth. In order to compare the performance of different states or regions, a comprehensive measure of financial inclusion is necessary which takes into account all its aspects. Review of literature on the subject reveals that measures so far suggested take into account only the supply side. This article suggests a measure taking into consideration supply, demand and infrastructure dimensions. It also takes into account the factors such as population growth, law and order situation and corruption, which have adverse impact on the factors which lead to financial inclusion. These adversely impacting factors are termed as drag. Separate indices are developed for three dimensions, namely, supply, demand and infrastructure, and a composite index of these three dimensions is computed. Also an index of drag factors is calculated. A comprehensive financial inclusion index is arrived at by modifying the former index by giving the effect of impact of drag. The index developed is comprehensive as well as flexible, in the sense that new parameters can be added to any of the dimensions including the drag, depending upon identification of parameter and availability of data. It is most suited to Indian conditions and can be used to measure comparative performance of Indian states or sub-regions of the states. It is also applicable to developing countries in general. The composite index is developed by using displaced ideal method which satisfies intuitive criteria of development index, namely, normality, anonymity, monotonicity, proximity, uniformity and signalling, collectively referred to with the acronym NAMPUS.

Measuring Financial Inclusion of Indian States

Measurement of financial inclusion is necessary to study the impact of various initiatives by stakeholders and to decide on the future course of action. The various indices developed take into account only banking-related initiatives. Recent focus on financial inclusion has also included other financial services like insurance, pension, financial literacy and remittances in its fold. We have taken these into consideration, in addition to banking services, and have developed measures based on the indicators of three dimensions namely demand, supply and infrastructure, as suggested by Ambarkhane, Singh and Venkataramani (2014). This index also takes into account the impact of negative factors, termed as drag factors, on financial inclusion. The index is developed for 21 major Indian states and ranking is done. The robustness of the index is tested. Comparison with other studies shows that index computed corroborates with them and focuses on poor.

Financial Inclusion, Governance and Institution: Evidence from Developing Economies

This paper argues that strong economic governance and institution are important elements in improving financial inclusion especially in developing countries with relatively large segment of poor population because markets, and economic activity and transactions more generally, cannot function well in its absence. Financial inclusion has become an important global agenda and emerging priority for policymakers and regulators in financial sector development in ensuring sustainable long-term economic growth. Many factors hinder the access and use of financial services among the population in many part of the world. The main obstacles can broadly be characterised as follows: i) social, macroeconomic, and infrastructure features; ii) institutional weakness; iii) obstacles arising from banking activities; and iv) regulatory distortion. Governments are not solely responsible for designing an appropriate policy framework that encourages access to financial services, but financial institutions offering these services must also play a decisive role. The literature on financial inclusion has identified two major factors that drive financial inclusion across countries: i) structural factors, which primarily determine the costs of providing financial services to the population; and ii) policy-related factors have also been found to be relevant in creating an enabling environment for financial inclusion (Love and Martinez Peria 2012). However, research addresses on the latter is limited particularly pertaining to developing countries. Without deeper understanding on these issues can creates the condition for ill-informed policy designs. Hence, this paper contribute to literature by examining the interlinkage between financial inclusion, institutions, governance and Islamic financial services industry using panel data analysis. The research will provide understanding of the impact surrounding governance and institutional factors in improving financial inclusion. This paper utilizes the data on individuals’ characteristics in the Global Findex database of the World Bank across 69 developing and emerging economies to examine how different countries’ characteristics are associated with financial inclusion. Then, this paper uses data from Worldwide Governance Indicators and The Heritage Foundation to proxy for governance and institutional characteristics. We use principle component analysis, perform baseline model using probit estimations to explain measures of financial inclusion, and then augmented the model with governance and institutional variables. The result is expected to provide the answer to what degree do financial inclusion patterns vary across different countries and individual-level characteristics. In addition, the result is expected to draw conclusions on the importance of governance and institutional factors, and to what extent institutions matters in improving financial inclusion.

Financial Stability and Financial Inclusion

Developing economies are seeking to promote financial inclusion, i.e., greater access to financial services for low-income households and firms, as part of their overall strategies for economic and financial development. This raises the question of whether financial stability and financial inclusion are, broadly speaking, substitutes or complements. In other words, does the move toward greater financial inclusion tend to increase or decrease financial stability? A number of studies have suggested both positive and negative ways in which financial inclusion could affect financial stability, but very few empirical studies have been made of their relationship. This partly reflects the scarcity and relative newness of data on financial inclusion. This study contributes to the literature on this subject by estimating the effects of various measures of financial inclusion (together with some control variables) on some measures of financial stability, including bank non-performing loans and bank Z scores. We find some evidence that an increased share of lending to small and medium sized enterprises (SMEs) aids financial stability, mainly by reducing non-performing loans (NPLs) and the probability of default by financial institutions. This suggests that policy measures to increase financial inclusion, at least by SMEs, would have the side-benefit of contributing to financial stability as well.

Demographic Extent and Measurement of Financial Inclusion in Jammu Division

The aim of this paper is to examine the demographic extent and measure the perceptual gap among the beneficiaries having different age, caste, religion, qualification, income, gender, and marital status regarding nature of financial inclusion in Jammu division. It is the fact that financial inclusion has emerged as an important topic on the global agenda for sustainable long-term economic growth of all the sections of the society. The study is based upon the primary data obtained from the beneficiaries of four banks namely, Jammu & Kashmir Bank (JKB), Jammu & Kashmir Grameen Bank (JKGB), State Bank of India (SBI), and Punjab National Bank (PNB) belonging to villages of five districts namely, Jammu, Samba, Kathua, Reasi, and Udhampur of Jammu division of J&K state through judgement sampling. A schedule was framed containing items of demographics and statements measuring financial inclusion based upon five point Likert scale. The findings indicate that on the demographic variables i.e., age, caste, gender & marital status, there is no significant difference exists regarding nature of financial inclusion, whereas on other demographic variables such as, religion, qualification & income nature of financial inclusion differs.

State Wise Analysis of Financial Inclusion Measures by Scheduled Commercial Banks in India

Various schemes have been launched to make the basic financial services accessible to those who are in maximum need of these. In a diverse country like India, there is lack of literature to identify how these measures have affected the people. The paper uses parameters of deposit and credit penetration to see how the people in all the states have been influenced by financial inclusion measures. The credit penetration has been judged via percentage of population having access to small borrowers advances, agricultural advances and overall access to credit, whereas the deposit penetration has been measured percentage of population having access to saving banks accounts CRISIL INCLUSIX, a financial inclusion indicator by CRISIL forms the basis of study which measures the trend over 6 years from 2008–2013. Southern states emerge as leaders in parameters of credit penetration, except in case of agri-advances penetration, which is highest in the state of Punjab. In case of deposit penetration, small states like Goa and Mizoram take a lead. Study helps us to know the level of financial inclusion in a country and provides a base for further policy and decision making by the apex authorities.

Developing a Comprehensive Financial Inclusion Index

In spite of efforts of six and half decades by the Government of India, poverty reduction in the country is not in sight. Rightly therefore 11th and 12th Five Year Plans focus on Inclusive Growth. In order to compare performance of different states or regions; a comprehensive measure of Financial Inclusion is necessary which takes in to account all its aspects. Review of literature on the subject reveals that measures so far suggested, take into account only supply side. This paper suggests a measure taking into consideration on Supply, Demand and Infrastructure dimensions. It also takes into account the factors such as population growth, law and order situation, and corruption which have adverse impact on the factors which lead to Financial Inclusion. These adversely impacting factors are termed as drag.Separate Indices are developed for three dimensions namely Supply, Demand and Infrastructure and a composite Index of these three dimensions is computed. So also an Index of drag factors is calculated. A Comprehensive Financial Inclusion Index is arrived at by modifying the former Index by giving effect of impact of drag. The Index developed, is comprehensive as well as flexible, in the sense that new parameters can be added to any of the dimensions including the drag; depending upon identification of parameter and availability of data. It is most suited to Indian conditions and can be used to measure, comparative performance of Indian States or sub regions of the States. It is also applicable to developing countries in general.The composite index is developed by using Displaced Ideal Method which satisfies intuitive criteria of development index namely Normality, Anonymity, Monotonicity, Proximity, Uniformity and Signaling collectively referred to with acronym of NAMPUS.

Financial inclusion in India: An axiomatic approach

In this paper we first develop an axiomatic measure of financial inclusion. This measure is readily implementable and useful to determine policy priorities to promote financial inclusion. Next, we demonstrate that supply side data on banking services can be usefully employed to measure financial inclusion. Third, we examine the effects of major banking policies on financial inclusion across states in India during 1972–2009, using panel data econometrics techniques. We find that the social-banking policy has played crucial role to foster financial inclusion across states in India during 1977–1990. Thereafter, the move toward pro-market financial sector reform has adversely affected the pace of financial inclusion. This paper identifies geographic penetration of banks and credit availability as two policy targets to foster financial inclusion in India.

Financial Growth in India

Ever since the enactment of the Cooperative and Regional Rural Banks Acts and nationalisation of scheduled commercial banks, financial inclusion measures in India have led to physical expansion in the country. Unfortunately, the expansion has not brought about the necessary change in the backward and rural areas as financial services are yet to reach a vast majority of the population. The financial exclusion is characterised by limited service providers, limited goals and limited lending, besides a huge area of operation and missing linkages between financial institutions and local organisations. Demand-side factors have also contributed to the present dimension of financial exclusion, the result of which is that over two-thirds of the under-served segments resort to high-cost financial services from informal sources, which are present in every nook and corner. This paper considers a number of alternative initiatives to increase access to institutional financial services for the under-served population.