Measuring Financial Inclusion: A Muldimensional Index

Abstract

We rely on demand and supply-side information to measure the extent of financial inclusion at country level for eighty-two developed and less-developed countries. We postulate that the degree of financial inclusion is determined by three dimensions: usage, barriers and access to financial inclusion. Weights assigned to the dimensions are determined endogenously by employing a two-stage Principal Component Analysis. Our composite index offers a comprehensive measure of the degree of financial inclusion, easy to understand and compute.

Keywords: Financial inclusion, Principal Component Analysis, inclusion barriers

JEL Classification: C43, G21, O16