Financial Inclusion Reimagined: A Comprehensive Index for 75 Global Economies

Abstract

In the last couple of years, there has been a shift in the financial services industry that goes hand in hand with accelerated technological advancement; it, therefore, requires a more encompassing approach to assessing its inclusive nature. This study, therefore, extends the understanding of analyzing cross-sectional data on Financial Inclusion by making a methodological contribution in the form of an improved composite Financial Inclusion Index. To offer a more comprehensive picture of the level of financial inclusion in some selected economies, this index includes the ‘mobile money agent’ into a range of dimensions. Constructed from data from 75 countries in 2011, 2014, 2017, and 2021, the index provides both capabilities and accessibility of digital financial services. As mentioned above, the index combines physical and digital financial access and usage, making up the overall Financial Inclusion Index. It prioritized the three-stage PCA method with an endogenously stipulated weight to measure financial inclusion. The data was collected from secondary resources, resulting in a comprehensive Financial Inclusion Index. The study shows that Korea, the United States, Australia, Switzerland, and Japan rank high in traditional financial access, while Uganda, the United Kingdom, Trinidad, Kenya, and Ukraine have the highest levels of digital financial access. Overall, the UK, USA, Korea, Uganda, and Trinidad are presented with the highest amount of financial inclusion, combining all the four factors mentioned earlier. On the other hand, low-performing nations include Afghanistan, Madagascar, and Angola, among others, in all three indices, while nations such as China and Mexico can be categorized as middle performers in all the indices. The overall financial inclusion index generated here provides a good benchmark tool for policymakers to comprehensively assess and rank such economies at different times. The aggregate perceived financial inclusion index is constructed to be easy to compute and allows cross-sectional comparison with other economies.