Measuring Financial Inclusion: A Survey

It is widely agreed that to be effective and acceptable, economic growth itself is not sufficient. The process of growth should be inclusive: a growth process that offers equality of opportunity to different segments of population and maintains equality in the distribution of the fruits of economic growth. Financial inclusion is undeniably an important factor in ensuring inclusive growth. One of the main hurdles the deprived section of population faces is fund constraint, the lack of access to fund at appropriate time and at acceptable terms. So, access to fund is a very important component of financial inclusion. But financial inclusion is not only about fund constraint, but also about provision of access to financial services at an affordable cost. Definition adopted by the Rangarajan Committee on Financial Inclusion (Rangarajan in Report of the committee on financial inclusion. NABARD, 2008) shows that there is an element of multidimensionality in the concept of financial inclusion. On a similar vein, (Rajan in A Hundred Small Steps: Report of the Committee on Financial Sector Reforms, 2009) also defines financial inclusion as the process that involves provision of financial products other than affordable credits. The present chapter aims at providing a critical survey on how the different researchers have perceived financial inclusion and quantified it. The studies that have quantified financial inclusion can be classified into two sets: the studies that adopt individual indicator approach and the studies that develop and use an index of financial inclusion. It is understandable that in both cases measuring the financial inclusion plays a very important role. The present chapter will cover both types of studies, while focusing on issues related to measurement of financial inclusion, the potentials and limitations of alternative measurements.