Financial Inclusion Index for Pakistan from 2008 to 2022 using Three-Staged PCA Analysis
DOI:
https://doi.org/10.56220/uwjms.v8i2.238Keywords:
Financial Inclusion (FI), Financial Inclusion Index (FI Index), Principal Component Analysis (PCA), Traditional Financial Inclusion, Digital Financial InclusionAbstract
Purpose: This study aims to develop a Financial Inclusion Index (FI Index) for Pakistan from 2008 to 2022, utilizing a three-stage Principal Component Analysis (PCA) technique. It evaluates the progress in both traditional and digital financial inclusion.
Design and Methodology: The FI index was constructed using supply-side indicators (e.g., bank branches, ATMs, mobile subscriptions) and demand-side variables (e.g., account ownership, savings behavior, mobile payments). Sub-indices for traditional and digital financial inclusion were combined to form a comprehensive index.
Findings: The results indicate significant improvements in financial inclusion in Pakistan, particularly in digital services, though challenges remain in integrating underserved populations.
Implications: The developed FI index provides valuable insights for policymakers to design strategies that promote inclusive financial systems, contributing to sustainable economic growth.
Keywords: Financial Inclusion (FI), Financial Inclusion Index (FI Index), Principal Component Analysis (PCA), Composite FI Index, Traditional Index, Digital Index.
References
Aduda, J., & Kalunda, E. (2012). Financial inclusion and financial sector stability with reference to Kenya: A review of literature. Journal of Applied Finance and Banking, 2(6), 95.
Ahamed, M. Mostak, and Sushanta K. Malick. 2019. Is financial inclusion good for bank stability? International evidence. Journal of Economic Behavior and Organization 157: 403–27.
Atkinson, A., & Messy, F. A. (2013). Promoting financial inclusion through financial education: OECD/INFE evidence, policies and practice.
Avom, Désiré, Chrysost Bangaké, and Hermann Ndoya. 2021. Measuring financial inclusion in African countries. Economics Bulletin 41: 848–66.
Banka, H. (2014). M-PESA at the point of sale: Expanding financial inclusion and reducing demand for physical cash. Journal of Payments Strategy & Systems, 7(4), 359-369.
Beck, T., Demirgüç-Kunt, A., & Levine, R. (2007). Finance, inequality and the poor. Journal of economic growth, 12(1), 27-49.
Camara, N., & Tuesta, D. (2018). Measuring financial inclusion: A multidimensional index. IFC Bulletins chapters, 47, 1–23.
Chauvet, L., & Jacolin, L. (2017). Financial inclusion, bank concentration, and firm performance. World Development, 97, 1–13.
Chinoda, T., &Kwenda, F. (2019). Do mobile phones, economic growth, bank competition and stability matter for financial inclusion in Africa? Cogent Economics & Finance.
Demirguc-Kunt, A., L. Klapper, and D. Singer (2013). “Financial Inclusion and Legal Discrimination Against Women: Evidence from Developing Countries.” Policy Research Working Paper 6416, The World Bank Group, Washington, D.C.
Demirguc-Kunt, A., Klapper, L., Singer, D., & Van Oudheusden, P. (2015). The Global Findex Database 2014: Measuring financial inclusion around the world (No. 7255). The World Bank.
Elsayed, Abdullah. 2020. The Interrelationship between Financial Inclusion, Financial Stability, Financial Integrity and Consumer Protection (I-SIP Theory). Available online: http://dx.doi.org/10.2139/ssrn.3745874 (accessed on 12 February 2021).
Grohmann, A., Klühs, T., & Menkhoff, L. (2018). Does financial literacy improve financial inclusion? Cross country evidence. World Development, 111, 84-96.
Huang, Y., & Zhang, Y. (2020). Financial inclusion and urban–Rural income inequality: Long-run and short-run relationships. Emerging Markets Finance and Trade, 56(2), 457–471.
Jungo, João, Mara Madaleno, and Anabela Botelho. 2022. The Effect of Financial Inclusion and Competitiveness on Financial Stability: WhyFinancial Regulation Matters in Developing Countries? Journal of Risk and Financial Management 15: 122.
Kabakova, O., & Plaksenkov, E. (2018). Analysis of factors affecting financial inclusion: Ecosystem view. Journal of business Research, 89, 198-205.
Kapadia, S. (2019). A perspective on financial literacy and inclusion in India.
Kaur, P., & Abrol, V. (2018). Measuring financial inclusion in jammu & kashmir state: An empirical study. Journal of Business & Management, 20(1), 37–44.
Khera, P., et al. (2021). Measuring Digital Financial Inclusion in Emerging Market and Developing Economies: A New Index, IMF Working Paper. WP/21/90.
King, R. G., & Levine, R. (1993). Finance and growth: Schumpeter might be right. The quarterly journal of economics, 108(3), 717-737.
Kithinji, Emily. 2017. Effects of Digital Banking Strategy on Financial Inclusion among Commercial Banks in Kenya. Project Presented in Partial Fulfillment of the Requirements for the Award of the Degree of Master Business Administration. Doctoral dissertation, University of Nairobi, Nairobi, Kenya.
Leeladhar, Vivek. 2006. Taking banking services to the common man-financial inclusion. Reserve Bank of India Bulletin 60: 73–77.
Léon, F., & Zins, A. (2020). Regional foreign banks and financial inclusion: Evidence from Africa. Economic Modelling, 84, 102-116.
Levine, R., & Zervos, S. (1996). Stock market development and long-run growth. The world bank economic review, 10(2), 323-339.
Mehrotra, A., & Nadhanael, G. V. (2016). Financial inclusion and monetary policy in emerging Asia. In Financial inclusion in Asia. pp. 93–127. London UK: Palgrave Macmillan.
Mialou, A., Amidzic, G., & Massara, A. (2017). Assessing countries’ financial inclusion standing–A new composite index. Journal of Banking and Financial Economics, 2(8), 105–126.
Nasir, M. A., Balsalobre-Lorente, D., & Huynh, T. L. D. (2020). Anchoring inflation expectations in the face of oil shocks & in the proximity of ZLB: A tale of two targeters. Energy Economics, 86, 1–28.
Ndebbio, J. E. U. (2004). Financial deepening, economic growth and development: Evidence from selected sub-Saharan African Countries.
Nguyen, Thi Truc Huong. 2020. Measuring financial inclusion: A composite FI index for the developing countries. Journal of Economics and Development 23: 77–99.
Ouma, S. A., Odongo, T. M., & Were, M. (2017). Mobile financial services and financial inclusion: Is it a boon for savings mobilization? Review of development finance, 7(1), 29 35.
Ozili, P. K. (2018). Impact of digital finance on financial inclusion and stability. Borsa Istanbul Review, 18(4), 329-340.
Ozili, Peterson K. 2020. Contesting Digital Finance for the Poor. Digital Policy, Regulation and Governance 22: 135–51. [CrossRef] Paramasivan, Chelliah, and V. Ganeshkumar. 2013. Overview of Financial Inclusion in India. International Journal of Management and Development Studies 2: 45–49.
Park, C. Y., & Mercado, R. (2018). Financial inclusion, poverty, and income inequality. The Singapore Economic Review, 63(01), 185–206.
Prastowo, P., & Putriani, D. (2019). Income Inequality and Regional Index of Financial Inclusion For Islamic Bank in Indonesia. Al-Iqtishad: Jurnal Ilmu Ekonomi Syariah, 11(1), 135–152.
Sarma, M. (2008). Index of financial inclusion. Indian council for research on international economic relations working paper No. 215.
Sarma, M. (2012). Index of Financial Inclusion–A measure of financial sector inclusiveness (No. 1207). Berlin (GE): Berlin Working Papers on Money, Finance, Trade and development.
Sarma, M. (2015). Measuring financial inclusion. Economics Bulletin, 35(1), 604–611.
Sarma, Mandira. 2016. Measuring financial inclusion for Asian economies. In Financial Inclusion in Asia. London: Palgrave Macmillan, pp. 3–34.
Sarma, Mandira, and Jesim Pais. 2011. Financial inclusion and development. Journal of International Development 23: 613–28.
Sethi, D., & Sethy, S. K. (2019). Financial inclusion matters for economic growth in India: Some evidence from cointegration analysis. International Journal of Social Economics, 46(1), 132–151.
Sha’ban, M., Girardone, C., & Sarkisyan, A. (2020). Cross-country variation in financial inclusion: A global perspective. European Journal of Finance, 26(4–5), 319–340.
Sharma, D. (2016). Nexus between financial inclusion and economic growth: Evidence from the emerging Indian economy. Journal of financial economic policy.
The World Bank Annual Report. 2008. Year in Review, World Bank Document. Available online: http://hdl.handle.net/10986/7524.
Van, Loan Thi-Hong, Anh The Vo, Nhan Thien Nguyen, and Duc Hong Vo. 2021. Financial inclusion and economic growth: An international evidence. Emerging Markets Finance and Trade 57: 239–63.
Wang, X., & Guan, J. (2017). Financial inclusion: Measurement, spatial effects and influencing factors. Applied Economics, 49(18), 1751–1762.
Yorulmaz, R. (2018). An analysis of constructing global financial inclusion indices. Borsa Istanbul Review, 18(3), 248–258.
