Constructing and Measuring the Financial Inclusion Index in Developing Countries

Abstract

This study developed the Financial Inclusion Index (FII) as a measurement tool for assessing financial access across 28 developing countries in Africa, Latin America and the Caribbean, Asia and the Pacific region during the period 2008-2022. Based on the two-stage Principal Component Analysis (PCA) methodology proposed by Cámara & Tuesta (2014), the research extends the measurement framework by incorporating insurance factors into three dimensions of financial inclusion: penetration, availability, and usage of financial services. The analytical results demonstrate the appropriateness of including insurance factors, enabling a more comprehensive evaluation of financial access in developing economies. Through a system of pre- and post-PCA tests, the study ensures the reliability and effectiveness of the developed measurement tool. The FII estimation results reveal the development of financial inclusion, highlighting both achieved aspects and areas requiring improvement in the studied countries. Based on these findings, the paper proposes policy implications aimed at enhancing the FII in contemporary developing economies.