Ranking of countries based on multi‐dimensional financial inclusion index: A global perspective

Chandralekha Ghosh and Rimita Hom Chaudhury

International Journal of Finance & Economics, 2024, vol. 29, issue 2, 1345-1377

Abstract: This article has proposed a new five‐dimensional financial inclusion index (FII) incorporating important indicators of digital financial services and insurance services to evaluate the scenario of financial inclusion across 136 countries for the year 2017. Here, dimensions have been created depending upon the characteristics of variables. To carry out the analysis, we have used the two‐stage principal component method. First, all five dimension indices (geographic outreach, demographic outreach, access, usage population, and usage volume) have been constructed, and then finally, the composite FII has been computed. One important addition in building this index is the inclusion of insurance‐related and digital finance‐related variables, which have not been included in previous cross‐country studies. Another contribution of this study is the identification of the dimension(s) that ultimately have the greatest influence on the financial inclusion score. We discovered that dimensions (access and usage population) constructed based on demand‐side factors dominate the level of financial inclusion. Therefore, top‐ranking countries in the access and usage population index are more likely to score higher than others in the FII. This underlines the relevance of demand‐side factors as indicators of financial inclusion over supply‐side factors.

Date: 2024
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