Financial Inclusion Index for Pakistan from 2008 to 2022 using Three-Staged PCA Analysis
DOI:
https://doi.org/10.52461/sabas.v6i2.3204Keywords:
Financial Inclusion, Financial Inclusion Index (FI Index), Principal Component Analysis (PCA), Traditional Financial Inclusion, Digital Financial InclusionAbstract
This study estimate Financial Inclusion Index (FI Index) for Pakistan over the period 2008 to 2022 applying three-stage Principal Component Analysis (PCA) technique. Financial inclusion (FI) has emerged as a vital component of sustainable development, aiming to provide access to affordable and functional financial services for all society. It plays a critical role in promoting economic growth, reducing poverty, and advancing financial stability. This research constructs a composite FI index by capturing both traditional and digital dimensions of financial inclusion. It incorporates access and usage components across various financial services. The study employs a multi-dimensional approach. It employs supply-side dimensions such as the number of bank branches, ATMs, and mobile subscriptions. The demand-side variables like account ownership, savings behavior, and mobile payment usage are considered. The PCA method facilitates the construction of separate sub-indices for traditional and digital financial inclusion. These are then combined to create a comprehensive FI index. Findings indicate significant progress in both traditional and digital financial inclusion in Pakistan. Though challenges remain in fully integrating underserved populations. The developed FI index provides insights into the evolution of financial inclusion. It contributes to policymaking aimed at encouraging inclusive financial systems and achieving broader economic development objectives.
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