The promotion of an inclusive financial system is a policy priority in many countries. While the importance of financial inclusion is widely recognized, the literature lacks a comprehensive measure that can be used to measure the extent of financial inclusion across economies. This paper attempts to fill this gap by proposing an index of financial inclusion (IFI). The proposed IFI captures information on various dimensions of financial inclusion in a single number lying between 0 and 1, where 0 denotes complete financial exclusion and 1 indicates complete financial inclusion in an economy. The proposed index is easy to compute and is comparable across countries and over time. It also satisfies some important mathematical properties.

Mandira Sarma

Published in Berlin Working Papers on Money, Finance, Trade and Development, July 2012