Accurately assessing financial inclusion levels is fundamental for guiding inclusion efforts, but doing so on a large scale remains an issue, in spite of a growing supply of data and resources. A new composite index from the International Monetary Fund aims to change this. The new tool incorporates multiple inclusion dimensions and advanced methodologies, creating the ability to generate easily comparable inclusion calculations at the country, region, income, or even operational level.
The new index addresses criticisms of previous financial inclusion indices, particularly the inability to accurately incorporate multiple financial inclusion dimensions into one tool. The index was built using data from IMF’s Financial Access Survey and from the World Bank’s World Development Indicators dataset. Released late last month, along with the tool, the IMF published the results of running the index using the country information included in IMF’s dataset for 2009 to 2012.
The index is based on a definition of financial inclusion that incorporates the dimensions of outreach, usage, and quality of financial services. To capture outreach, the index employs the variables of number of ATMs and financial institutions per landmass or adult population. According to the World Bank Global Findex, out of the 2.5 billion people who are excluded from formal financial services, 20 percent cite physical distance from the point of service as the main reason for not having an account. For usage, the index incorporates the variables of percentage of adults with at least one type of regulated deposit account, and percentage of adults with at least one type of regulated loan account. Although the IMF recognizes services quality as cornerstone to inclusion, they indicate there is not yet ample data to enable its incorporation in the index. However, expanding the index in future iterations to include quality is indicated as a possibility.
Among the results uncovered by running the index, the new tool found that the assessed countries’ inclusion rankings remained generally stable relative to one another between 2009 and 2012. However, one trend illustrated by the composite financial inclusion index, as well as by the outreach and usage sub-indexes, was a polarization based on income levels. For example, in 2009 seven out of the ten top-ranked inclusion countries were high and upper-middle income, and by 2012 this increased to eight countries. For outreach specifically, high and upper-middle income countries accounted for half of the top ten in 2009, and by 2012 they accounted for eight of the top ten. On the opposite end, this polarizing dynamic based on income was illustrated for the lowest ranking countries, too, for all three areas of outreach, usage, and overall inclusion.
Examining performance by region, the top ten ranking countries for all three indices demonstrate great geographic diversity. Though there is a preponderance of densely-populated and smaller-sized countries in the top ten for outreach (for example, Mauritius and the Maldives ranked one and two every year their data was available), the high-ranking countries for the other two areas exhibit more varied size and population distributions. Brunei and Thailand, regularly ranking in the top three for usage, demonstrate such diversity. This regional variation among the top rankings was not shown in the lower rankings. The African and Middle East & Central Asia regions accounted for almost the entire bottom ten for usage every year. For overall inclusion, the African region occupied six out of the bottom ten spots in 2011, and eight out of the bottom ten in 2012. In this final year studied, the bottom three countries were the Republic of Congo, followed by the Central African Republic, and, least inclusive, Chad.