Estimation of Financial Inclusion Index for Low and Lower-Middle Income Countries
Keywords:
Financial Access, Financial Inclusion, Financial Institution, Digital InnovationAbstract
This study aims to estimate the financial inclusion (FI) index in Low- Income and Lower-Middle- Income (LLMI) Countries. The study used the Principal Component Analysis technique and Euclidean Distance Method to estimate the FI index for 39 LLMI countries over 11 years, from 2010 to 2020. For constructing the index, this study used four dimensions, i.e., “financial access, financial usage, infrastructure & communication technology, and banking cost.” These findings suggest that the exploitation of FI is the reason behind the low FI level in LLMI countries. Moreover, these countries have a higher banking costs compared to high-income countries. Therefore, financial inconsistency and banking competition hinder achieving an ideal FI level. This study also discusses policy recommendations for optimal FI in LLMI countries. From a policy perspective, strong regulation for FI is necessary for countries with unstable economic conditions, such as Ghana, which has an unsuitable economic condition to enhance FI. To increase the level of FI, the government must develop a strategic framework to improve FI. FI policy must focus on initiating, monitoring, and developing FI in the country.References
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