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Index of Financial Inclusion – A measure of financial sector inclusiveness

Author

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  • Mandira Sarma

Abstract

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.

Suggested Citation

  • 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.
  • Handle: RePEc:mtf:wpaper:1207
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    File URL: http://finance-and-trade.htw-berlin.de/fileadmin/HTW/Forschung/Money_Finance_Trade_Development/working_paper_series/wp_07_2012_Sarma_Index-of-Financial-Inclusion.pdf
    File Function: First version, 2012
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    References listed on IDEAS

    as
    1. Ross Levine, 1997. "Financial Development and Economic Growth: Views and Agenda," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 688-726, June.
    2. 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.
    3. Harald Trabold-Nübler, 1991. "The human development index—A new development indicator?," Intereconomics: Review of European Economic Policy, Springer;German National Library of Economics;Centre for European Policy Studies (CEPS), vol. 26(5), pages 236-243, September.
    4. Desai, Meghnad, 1991. "Human development : Concepts and measurement," European Economic Review, Elsevier, vol. 35(2-3), pages 350-357, April.
    5. Sagar, Ambuj D. & Najam, Adil, 1998. "The human development index: a critical review," Ecological Economics, Elsevier, vol. 25(3), pages 249-264, June.
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    Cited by:

    1. Kelbore, Zerihun Getachew, 2014. "Multidimensional structural transformation index: a new measure of development," MPRA Paper 62920, University Library of Munich, Germany, revised 16 Mar 2015.

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