Going by the Reserve Bank of India’s (RBI) Financial Inclusion Index (FI-Index), which the central bank introduced on Tuesday, the extensive work done to improve access to financial services appears to be paying off.

       According to the RBI’s assessment, the FI-Index for the period ended March 2021 was 53.9 as against 43.4 for the period ended March 2017. The central bank will publish the index annually in July.

       The index will be a single value between 0 and 100, where 0 represents complete financial exclusion and 100 shows full financial inclusion. And, it will have three broad parameters with weights — access (35 per cent), usage (45 per cent), and quality (20 per cent). Each of these parameters has various dimensions, computed based on several indicators.

       “The index is responsive to ease of access, availability and usage of services, and quality of services, comprising all 97 indicators,” the central bank said.

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       A unique feature of the index is the quality parameter, which will capture the financial literacy, consumer protection, and inequalities and deficiencies in services. The index has no base year, reflecting cumulative efforts of all stakeholders over the years towards financial inclusion.

       The RBI had announced the introduction of such an index in its bi-monthly monetary policy statement on April 7.

       C S Setty, managing director (retail and digital banking) at State Bank of India, said there has been extensive improvement in services going beyond just bank accounts to credit, payments, micro insurance and gradually mutual funds. The next step is digital financial literacy to confidently operate on electronic platforms and protect against cyber frauds.

       According to RBI the scaling up of financial inclusion has been supported by the digital ID (Aadhaar), the proliferation of mobile phones and world-class payment systems. They helped to address two challenges of access and usage to a large extent. The third challenge, quality, requires both demand and supply-side interventions.

       Last month, RBI Governor Shaktikanta Das had said financial inclusion promotes inclusive growth by making services, including credit and safety nets, available to the bottom of the pyramid. Lessons from the past and experiences gained during the Covid-19 pandemic clearly indicate that financial inclusion and inclusive growth reinforce financial stability.

       Payment systems are a lifeline of an economy and are seen as a means of achieving financial inclusion. India has state-of-the-art payment infra-structure and products leading to a wider adoption of digital payments, the central bank said.

       This is evident in the increase in the number of Prepaid Payment Instruments (PPI) issued. PPIs have grown at a compound annual growth rate (CAGR) of 53 per cent from 410 million in May 2017 to 2.26 billion in May 2021. This indicates that such instruments have become immensely popular for making small value payments, RBI said.