Sunil Jain: Financial Inclusion Index

PERSPECTIVES

It’s pretty obvious that India has a pretty poor score in terms of financial inclusion, but just how poor is the question. Traditional indicators like the number of bank accounts per thousand adults or the credit-to-GDP ratio are often used, but don’t always convey the correct picture. So, for instance, Russia has amongst the highest number of bank accounts per thousand adults (2,245 versus India’s 627) but its credit-to-GDP ratio is just 24.1 per cent to India’s 36.9 per cent. Which figure should one use while calculating financial inclusion? Argentina, similarly, has a higher number of bank branches per ten thousand adults than India (13.7 versus 9.4) but a credit-GDP ratio that’s less than a third (10.3 per cent versus 36.9 per cent).

Mandira Sarma of ICRIER has developed a single Index of Financial Inclusion that tries to capture all facets of financial inclusion – it includes, for instance, the actual usage of bank accounts which is what really matters instead of just the number of accounts. The Index shows India’s ranked 50th out of 100 countries. The Index shows just how misleading the single-point indices of the past are. Colombia which is around a third ahead of India in terms of bank accounts and branches on a per capita basis, but half when it comes to credit-to-GDP ratios is ranked 72nd to India’s 50th; Russia which has almost four times as many bank accounts per capita but just two thirds India’s credit-GDP ratio is ranked 83rd in terms of financial inclusion. 

Index of Financial Inclusion
Country	IFI	IFI Rank
Spain	0.79	1
Germany	0.60	4
United Kingdom	0.43	17
United States	0.37	21
China	0.30	32
Brazil	0.21	44
India	0.17	50
Indonesia	0.14	60
Bangladesh	0.12	69
Russia	0.07	83