IDEAS home Printed from https://ideas.repec.org/a/gam/jjrfmx/v16y2023i6p296-d1166185.html
   My bibliography  Save this article

Developing a Multidimensional Financial Inclusion Index: A Comparison Based on Income Groups

Author

Listed:
  • Inès Gharbi

    (Faculty of Economics and Management of Sfax, University of Sfax, Route de l’Aéroport Km 0.5 BP 1169, Sfax 3029, Tunisia)

  • Aïda Kammoun

    (Higher Institute of Business Administration, University of Sfax, Sfax 3018, Tunisia
    Bestmod Laboratory, University of Tunis, Tunis 1002, Tunisia)

Abstract

The aim of our paper is to construct a multidimensional financial inclusion (FI) index to measure the level of FI in 91 countries across different income groups. In order to address our research problem, we use the principal component analysis method. This approach addresses the criticism of the arbitrary selection of weights and reflects the degree of financial inclusion in depth. The data are drawn from the International Monetary Fund (IMF) Financial Access Survey (FAS), the World Development Indicators (World Bank) and the Global Findex Database during the period of 2004–2020. This paper is the first to consider so many indicators of financial inclusion (13 indicators), belonging to three different dimensions of FI, in order to take into account the maximum number of aspects related to this concept. In addition, unlike previous work, this paper considers both developing and developed countries, which makes it possible to identify differences between them. The proposed index has some advantages. First, it is robust, comparable across countries and has good predictive power in tracking household microeconomic indicators (accounts and savings). It is also well correlated with macroeconomic variables such as literacy rate, poverty, GINI index, real interest rate and employers. Second, our results clearly show that, as a country’s income level grows higher, its level of financial inclusion also grows higher.

Suggested Citation

  • Inès Gharbi & Aïda Kammoun, 2023. "Developing a Multidimensional Financial Inclusion Index: A Comparison Based on Income Groups," JRFM, MDPI, vol. 16(6), pages 1-19, June.
    • Handle: RePEc:gam:jjrfmx:v:16:y:2023:i:6:p:296-:d:1166185
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/1911-8074/16/6/296/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/1911-8074/16/6/296/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Fungáčová, Zuzana & Weill, Laurent, 2015. "Understanding financial inclusion in China," China Economic Review, Elsevier, vol. 34(C), pages 196-206.
    2. Mandira Sarma, 2015. "Measuring financial inclusion," Economics Bulletin, AccessEcon, vol. 35(1), pages 604-611.
    3. Beck, Thorsten & Demirguc-Kunt, Asli & Martinez Peria, Maria Soledad, 2007. "Reaching out: Access to and use of banking services across countries," Journal of Financial Economics, Elsevier, vol. 85(1), pages 234-266, July.
    4. Mandira Sarma, 2008. "Index of Financial Inclusion," Working Papers id:1575, eSocialSciences.
    5. Cyn-Young Park & Rogelio Mercado, 2018. "Financial Inclusion, Poverty, And Income Inequality," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 63(01), pages 185-206, March.
    6. Asli Demirguc-Kunt & Leora Klapper, 2013. "Measuring Financial Inclusion: Explaining Variation in Use of Financial Services across and within Countries," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 46(1 (Spring), pages 279-340.
    7. Désiré Avom & Chrysost Bangaké & Hermann Ndoya, 2021. "Measuring financial inclusion in African countries," Economics Bulletin, AccessEcon, vol. 41(3), pages 848-866.
    8. Neaime, Simon & Gaysset, Isabelle, 2018. "Financial inclusion and stability in MENA: Evidence from poverty and inequality," Finance Research Letters, Elsevier, vol. 24(C), pages 230-237.
    9. Ahamed, M. Mostak & Mallick, Sushanta K., 2019. "Is financial inclusion good for bank stability? International evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 157(C), pages 403-427.
    10. Loan Thi-Hong Van & Anh The Vo & Nhan Thien Nguyen & Duc Hong Vo, 2021. "Financial Inclusion and Economic GROWTH: An International Evidence," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 57(1), pages 239-263, January.
    11. Noelia Cámara & David Tuesta, 2018. "Measuring financial inclusion: a multidimensional index," IFC Bulletins chapters, in: Bank for International Settlements (ed.), The role of data in supporting financial inclusion policy, volume 47, Bank for International Settlements.
    12. Jacoby, Hanan G, 1994. "Borrowing Constraints and Progress through School: Evidence from Peru," The Review of Economics and Statistics, MIT Press, vol. 76(1), pages 151-160, February.
    13. Mandira Sarma, 2012. "Index of Financial Inclusion – A measure of financial sector inclusiveness," Competence Centre on Money, Trade, Finance and Development 1207, Hochschule fuer Technik und Wirtschaft, Berlin.
    14. Ajim Uddin & Mohammad Ashraful Ferdous Chowdhury & Md. Nazrul Islam, 2017. "Determinants Of Financial Inclusion In Bangladesh: Dynamic Gmm & Quantile Regression Approach," Journal of Developing Areas, Tennessee State University, College of Business, vol. 51(2), pages 221-237, April-Jun.
    15. Mallika Saha & Kumar Debasis Dutta, 2022. "Revisiting financial inclusion-stability nexus: cross-country heterogeneity," Journal of Financial Economic Policy, Emerald Group Publishing Limited, vol. 14(5), pages 713-742, April.
    16. Mandira Sarma, 2008. "Index of Financial Inclusion," Finance Working Papers 22259, East Asian Bureau of Economic Research.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Changjun Zheng & Md Ataur Rahman & Shahadat Hossain & Syed Moudud-Ul-Huq, 2023. "Does Fintech-Driven Inclusive Finance Induce Bank Profitability? Empirical Evidence from Developing Countries," JRFM, MDPI, vol. 16(10), pages 1-28, October.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sabyasachi Tripathi & Meenakshi Rajeev, 2023. "Gender-Inclusive Development through Fintech: Studying Gender-Based Digital Financial Inclusion in a Cross-Country Setting," Sustainability, MDPI, vol. 15(13), pages 1-34, June.
    2. Tram, Thi Xuan Huong & Lai, Tien Dinh & Nguyen, Thi Truc Huong, 2023. "Constructing a composite financial inclusion index for developing economies," The Quarterly Review of Economics and Finance, Elsevier, vol. 87(C), pages 257-265.
    3. Bhanu Pratap Singh & Anup Kumar Yadava, 2022. "Technical efficiency of financial inclusion and human development: Insights from the Indian states," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 51(2), July.
    4. Nkambule, Maxwell Banele, 2022. "The financial inclusion status of rural households in Eswatini," Research Theses 334766, Collaborative Masters Program in Agricultural and Applied Economics.
    5. Bao Zhu & Shiting Zhai & Jing He, 2018. "Is the Development of China’s Financial Inclusion Sustainable? Evidence from a Perspective of Balance," Sustainability, MDPI, vol. 10(4), pages 1-16, April.
    6. Thanh Tam Le & Nguyen Dieu Linh Dang & Thi Dieu Thu Nguyen & Thanh Son Vu & Manh Dung Tran, 2019. "Determinants of Financial Inclusion: Comparative Study of Asian Countries," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 9(10), pages 1107-1123, October.
    7. US Thathsarani & Jianguo Wei & GRSRC Samaraweera, 2021. "Financial Inclusion’s Role in Economic Growth and Human Capital in South Asia: An Econometric Approach," Sustainability, MDPI, vol. 13(8), pages 1-18, April.
    8. Amit Pandey & Ravi Kiran & Rakesh Kumar Sharma, 2023. "Investigating the Determinants of Financial Inclusion in BRICS Economies: Panel Data Analysis Using Fixed-Effect and Cross-Section Random Effect," Sustainability, MDPI, vol. 15(2), pages 1-21, January.
    9. Amit Pandey & Ravi Kiran & Rakesh Kumar Sharma, 2022. "Investigating the Impact of Financial Inclusion Drivers, Financial Literacy and Financial Initiatives in Fostering Sustainable Growth in North India," Sustainability, MDPI, vol. 14(17), pages 1-21, September.
    10. Désiré Avom & Chrysost Bangaké & Hermann Ndoya, 2021. "Measuring financial inclusion in African countries," Economics Bulletin, AccessEcon, vol. 41(3), pages 848-866.
    11. Bhanu Pratap Singh & Annu Kumari & Tanya Sharma & Abhishek Malhotra, 2021. "Financial inclusion, Pradhan Mantri Jan Dhan Yojna Scheme and economic growth: Evidence from Indian States," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 50(3), November.
    12. Anh L.N. Ngo, 2019. "Index of Financial Inclusion and the Determinants: An Investigation in Asia," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 9(12), pages 1368-1382, December.
    13. Fan Liu & Barnabé Walheer, 2022. "Financial inclusion, financial technology, and economic development: a composite index approach," Empirical Economics, Springer, vol. 63(3), pages 1457-1487, September.
    14. Rajabrata Banerjee & Admasu Asfaw Maruta & Ronald Donato, 2023. "Does higher financial inclusion lead to better health outcomes? Evidence from developing and transitional economies," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 31(2), pages 363-401, April.
    15. Loan Thi-Hong Van & Anh The Vo & Nhan Thien Nguyen & Duc Hong Vo, 2021. "Financial Inclusion and Economic GROWTH: An International Evidence," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 57(1), pages 239-263, January.
    16. Vanesa Pesqué‐Cela & Lihui Tian & Deming Luo & Damian Tobin & Gerhard Kling, 2021. "Defining and measuring financial inclusion: A systematic review and confirmatory factor analysis," Journal of International Development, John Wiley & Sons, Ltd., vol. 33(2), pages 316-341, March.
    17. Shahid Manzoor Shah & Amjad Ali, 2023. "Macro Dimensions of Financial Inclusion Index and its Status in Developing Countries," Journal of Policy Research (JPR), Research Foundation for Humanity (RFH), vol. 9(1), pages 1-12, March.
    18. Giorgio Nuzzo & Stefano Piermattei, 2019. "Measuring financial inclusion in the main euro area countries: the role of electronic cards," Questioni di Economia e Finanza (Occasional Papers) 504, Bank of Italy, Economic Research and International Relations Area.
    19. Idrees Liaqat & Yongqiang Gao & Faheem Ur Rehman & Zoltán Lakner & Judit Oláh, 2022. "National Culture and Financial Inclusion: Evidence from Belt and Road Economies," Sustainability, MDPI, vol. 14(6), pages 1-21, March.
    20. Giorgio Nuzzo & Stefano Piermattei, 2020. "Discussing Measures of Financial Inclusion for the Main Euro Area Countries," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 148(3), pages 765-786, April.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jjrfmx:v:16:y:2023:i:6:p:296-:d:1166185. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.