## Assessing Countries’ Financial Inclusion Standing - A New Composite Index

_IMF Working Papers, February 21, 2014_

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## Bibliographic details
- Authors: Alexander Massara, André Mialou
- Published: February 21, 2014
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781475569681.001

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### Overview and purpose
- Paper leverages the IMF’s Financial Access Survey (FAS) database to construct a new composite index of financial inclusion.
- Motivation:
  - Financial inclusion has gathered significant attention in recent years.
  - Various initiatives have been undertaken by central banks both in advanced and developing countries to promote financial inclusion.
  - The G-20, IMF, and World Bank Group have assumed an active role in developing and collecting financial inclusion data and promoting best practices to improve financial inclusion.
  - There is general recognition among policy makers that financial inclusion plays a significant role in sustaining employment, economic growth, and financial stability.
- Problem statement:
  - The issue of robust measurement of financial inclusion remains outstanding.
  - Previous indices have been criticized for the absence of an explicit weighting methodology.

### Methodology and index construction
- Data source:
  - IMF’s Financial Access Survey (FAS) database.
- Index methodology:
  - The new composite index uses factor analysis to derive a weighting methodology.
  - Countries are ranked based on the new composite index.
  - The index provides an additional analytical tool which could be used for surveillance and policy purposes on a regular basis.
- Technical features and terminology preserved from source:
  - factor analysis
  - weighting methodology
  - composite index value
  - cross-dimension composite index
  - geometric mean
  - normalized variable
  - scale invariance

### Key findings and analytical contributions
- The paper:
  - Constructs a new composite index of financial inclusion using FAS data and factor analysis.
  - Produces country rankings based on the composite index.
  - Addresses the persistent criticism of prior indices by providing an explicit weighting approach.
- Analytical utility:
  - The composite index can be used for surveillance and policy purposes.
  - The index contributes to the measurement literature on access and usage of financial services, outreach variables, and borrowers variable.

### Policy relevance and implications
- Policy relevance emphasized:
  - Financial inclusion’s role in sustaining employment, economic growth, and financial stability.
  - Relevance for central banks and policymakers in both advanced and developing countries.
  - Usefulness for the international community (G-20, IMF, World Bank Group) in monitoring and promoting best practices.
- Potential applications:
  - Regular surveillance of countries’ financial inclusion standing.
  - Informing policy initiatives aimed at expanding access and usage of financial services, household depositor outreach, and improving borrower access.

### Publication and metadata
- Authors: Alexander Massara, André Mialou
- Date: February 21, 2014
- Series: Working Paper No. 2014/036
- Issue: 036
- Volume: 2014
- Pages: 31
- DOI: https://doi.org/10.5089/9781475569681.001
- Stock No: WPIEA2014036
- ISBN: 9781475569681
- ISSN: 1018-5941
- Subjects: Commercial banks; Expenditure; Financial inclusion; Financial institutions; Financial markets; Financial services; National accounts; Personal income; Public expenditure review
- Keywords: a number of variable; access and usage of financial services; borrowers variable; Commercial banks; composite index value; cross-dimension composite index; factor analysis; Financial inclusion; geometric mean; Global; household depositor; income group; index; normalized variable; outreach variable; Personal income; Public expenditure review; scale invariance; usage variable; WP

*IMF Working Papers — "Assessing Countries’ Financial Inclusion Standing - A New Composite Index" by Alexander Massara and André Mialou (February 21, 2014).*

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/assessing-countries-financial-inclusion-standing-a-new-composite-index-41385_