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http://dx.doi.org/10.13106/jafeb.2021.vol8.no12.0363

Issues and Misconceptions of Financial Inclusion Indices: Evidences from Selected Asian Economies  

ALI, Jamshed (Department of Management Sciences, COMSATS University)
KHAN, Muhammad Arshad (Department of Economics, COMSATS University, Pakistan Institute of Development Economics)
KHAN, Usman Shaukat (Department of Management Science, COMSATS University)
WADOOD, Misbah (Department of Business Administration, Faculty of Management Sciences, International Islamic University Islamabad)
Publication Information
The Journal of Asian Finance, Economics and Business / v.8, no.12, 2021 , pp. 363-370 More about this Journal
Abstract
This study aims to revisit the issues and misconceptions about financial inclusion (FI) indices. For indices construction, this study uses two approaches: one approach following the methodology of Sarma (2008) which is based on UNDP methodology, while the other is the Dynamic Factor Model (DFM)-based index of Stock and Watson (2002) and Rehman et al. (2021). The data of 18 economies of Asia from 1997 till 2017 is used for indices construction and analysis. The authors constructed macro and micro-level financial inclusion indices based on the different types of financial inclusion indicators. Second, the authors have critically evaluated two different approaches, and the results show that Sarma (2008)-based index show financial inclusion's level, while DFM-based index reveal fluctuation in the current year's financial inclusion level due to the prior variations. For measuring the level of financial inclusion, the Sarma (2008) index is effective, while for forecasting the level of financial inclusion, the DFM approach is more appropriate. Furthermore, the micro and macro aspects of financial inclusion should be reflected in separate indices for better understanding and in-depth insights.
Keywords
Financial Inclusion; Indices; Dynamic Factor Model; Misconception; Fluctuation;
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