Measuring financial inclusion: a composite FI index for the developing countries

Abstract:

Purpose
The purpose of this paper is to focus on measuring financial inclusion (FI) level for the developing countries.

Design/methodology/approach
By using a two-stage principal component analysis method, we construct a composite FI index to measure the degree of FI. Data are collected through secondary sources including World Bank and IMF reports for the period 2012–2018.

Findings
We have built an overall FI index which is considered as a comprehensive measure of FI, a useful tool for policymaking and policy evaluation. Comparison with other studies shows that our FI index corroborates with them.

Practical implications
Building a good FI measurement method is important for developing countries. It helps to assess and compare the level of FI of each country and between countries together, made easily and accurately.

Originality/value
This study emphasizes the important role of FI in the economy. From there, an FI solution is integrated into the construction and calculation of its impact on other factors. This will help policymakers to take effective measures to increase FI levels to achieve sustainable economic growth.