A Framework for Measuring Financial Inclusion in India: Bridging Gaps Between Theory and Practice

Abstract

None of the currently used financial inclusion measurement indices covers savings, credit, remittance, and insurance services across access, usage, quality, and outcome dimensions as per globally accepted operational definitions of financial inclusion. Different indices have different combinations of financial inclusion indicators with some focusing on quantitative aspects and others on behavioral aspects alone. This makes the cross-cultural comparison of financial inclusion very difficult. The proliferation of new indices also hampers systematic knowledge advancement with significant disconnect between theory and practice. This paper analyses various loopholes in existing financial inclusion measurement methods and presents a very simple, flexible, innovative yet comprehensive measurement framework with immense theoretical, practical, and policy implications using India as the context.