Measuring financial inclusion: A multidimensional FI index for the developing countries

Abstract

Financial inclusion (FI) has attracted a great deal of attention and has become a topic of discussion among policy makers and scholars around the world. Especially in developing countries and emerging markets, where more than 90% of 1.7 billion people in the world do not have an account at a financial institution, FI is not only important but also the main goal of top priority. This paper focuses on measuring FI level for the developing countries. Accordingly, we develop a FI index by adding "mobile money" related indicators to all three dimensions of FI to best reflect the level of FI in these countries. To answer the main research questions, a two-stage Principal Component Analysis method is used to construct a FI index- considered as a comprehensive measure of FI. Data is collected through secondary sources including World Bank and the International Monetary Fund reports for the period 2012-2018. Our composite index is easy to calculate as well as comparable across economies and over time.Comparison with other studies shows that our FI index corroborates with them.